Maritime Administration
Improved Program Management Needed to Address Timely Disposal of Obsolete Ships Gao ID: GAO-05-264 March 7, 2005The Maritime Administration (MARAD) has more than 100 obsolete and deteriorating ships awaiting disposal that pose potentially costly environmental threats to the waterways near where they are stored. Congress, in 2000, mandated that MARAD dispose of them by September 30, 2006. While MARAD has various disposal options available, each option is complicated by legal, financial, and regulatory factors. In this report, GAO assesses (1) whether MARAD will meet the September 2006 disposal deadline for these ships and, if not, why not; (2) the extent that MARAD has used alternative disposal methods other than scrapping, and barriers to using other methods; (3) the appropriateness of MARAD's methods for procuring ship disposal services; and (4) the impact of foreign competition and other factors on reducing disposal costs.
MARAD is unlikely to meet its statutory deadline of September 30, 2006. As of September 2004, MARAD had disposed of 18 ships from its inventory, with over 100 ships left to dispose of by the deadline. MARAD's current approach is not sufficient for disposing of these remaining ships within the next 2 years. MARAD's slow progress is due primarily to program leaders not developing a comprehensive management approach that could address the myriad of environmental, legal, and regulatory challenges that the program faces. MARAD's approach lacks an integrated strategy with goals, milestones, performance measures, and a mitigation plan for overcoming anticipated impediments. In the absence of this comprehensive approach, MARAD's ship disposal program lacks the vision needed to sustain a long-term effort. Consequently, MARAD has not been able to assure Congress that it can dispose of these ships in a timely manner to reduce the threat of a costly environmental event, nor has it clearly articulated what additional congressional assistance, such as funding, may be needed. While MARAD has considered alternative disposal methods to scrapping, it has made limited use of these methods because of a number of environmental, financial, and legislative barriers. Since fiscal year 2001, MARAD has disposed of 17 ships through scrapping, but only 1 through artificial reefing. MARAD has not disposed of ships using deep-water sinking and donations to historic organizations. MARAD has taken positive steps to reduce barriers limiting its use of these methods but still may be years away from increasing the number of disposals using these alternative methods because it has not developed an overall plan for expanding their use. Consequently, MARAD may be losing opportunities that could expedite the disposal of the obsolete ships in its inventory. Since fiscal year 2002, MARAD has relied almost entirely on an inappropriate procurement method--Program Research and Development Announcements (PRDA)--to acquire ship scrapping services. The Federal Acquisition Regulation and the Competition in Contracting Act of 1984 generally require that MARAD use other methods for acquiring these types of services. PRDAs may only be used to contract for research or development. According to MARAD, PRDAs provide greater flexibility and allow firms to propose innovative solutions to ship disposal. GAO found, however, that MARAD was not contracting for research or development but instead was acquiring ship scrapping services. MARAD's use of PRDAs has also resulted in a lack of transparency in the contract award process and has raised concerns among firms as to the fairness of MARAD's processes. While GAO was unable to isolate the specific impact of foreign competition and other factors on reducing ship disposal costs, MARAD attributes the decrease in ship disposal prices almost exclusively to foreign competition. However, other factors, such as larger annual program funding and increases in the scrap value of steel, may have also played a role.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-264, Maritime Administration: Improved Program Management Needed to Address Timely Disposal of Obsolete Ships
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Report to the Ranking Minority Member, Subcommittee on Readiness,
Committee on Armed Services, House of Representatives:
March 2005:
Maritime Administration:
Improved Program Management Needed to Address Timely Disposal of
Obsolete Ships:
GAO-05-264:
GAO Highlights:
Highlights of GAO-05-264, a report to the Ranking Minority Member,
Subcommittee on Readiness, Committee on Armed Services, House of
Representatives
Why GAO Did This Study:
The Maritime Administration (MARAD) has more than 100 obsolete and
deteriorating ships awaiting disposal that pose potentially costly
environmental threats to the waterways near where they are stored.
Congress, in 2000, mandated that MARAD dispose of them by September 30,
2006. While MARAD has various disposal options available, each option
is complicated by legal, financial, and regulatory factors.
In this report, GAO assesses (1) whether MARAD will meet the September
2006 disposal deadline for these ships and, if not, why not; (2) the
extent that MARAD has used alternative disposal methods other than
scrapping, and barriers to using other methods; (3) the appropriateness
of MARAD‘s methods for procuring ship disposal services; and (4) the
impact of foreign competition and other factors on reducing disposal
costs.
What GAO Found:
MARAD is unlikely to meet its statutory deadline of September 30, 2006.
As of September 2004, MARAD had disposed of 18 ships from its
inventory, with over 100 ships left to dispose of by the deadline.
MARAD‘s current approach is not sufficient for disposing of these
remaining ships within the next 2 years. MARAD‘s slow progress is due
primarily to program leaders not developing a comprehensive management
approach that could address the myriad of environmental, legal, and
regulatory challenges that the program faces. MARAD‘s approach lacks an
integrated strategy with goals, milestones, performance measures, and a
mitigation plan for overcoming anticipated impediments. In the absence
of this comprehensive approach, MARAD‘s ship disposal program lacks the
vision needed to sustain a long-term effort. Consequently, MARAD has
not been able to assure Congress that it can dispose of these ships in
a timely manner to reduce the threat of a costly environmental event,
nor has it clearly articulated what additional congressional
assistance, such as funding, may be needed.
While MARAD has considered alternative disposal methods to scrapping,
it has made limited use of these methods because of a number of
environmental, financial, and legislative barriers. Since fiscal year
2001, MARAD has disposed of 17 ships through scrapping, but only 1
through artificial reefing. MARAD has not disposed of ships using deep-
water sinking and donations to historic organizations. MARAD has taken
positive steps to reduce barriers limiting its use of these methods but
still may be years away from increasing the number of disposals using
these alternative methods because it has not developed an overall plan
for expanding their use. Consequently, MARAD may be losing
opportunities that could expedite the disposal of the obsolete ships in
its inventory.
Since fiscal year 2002, MARAD has relied almost entirely on an
inappropriate procurement method”Program Research and Development
Announcements (PRDA)”to acquire ship scrapping services. The Federal
Acquisition Regulation and the Competition in Contracting Act of 1984
generally require that MARAD use other methods for acquiring these
types of services. PRDAs may only be used to contract for research or
development. According to MARAD, PRDAs provide greater flexibility and
allow firms to propose innovative solutions to ship disposal. GAO
found, however, that MARAD was not contracting for research or
development but instead was acquiring ship scrapping services. MARAD‘s
use of PRDAs has also resulted in a lack of transparency in the
contract award process and has raised concerns among firms as to the
fairness of MARAD‘s processes.
While GAO was unable to isolate the specific impact of foreign
competition and other factors on reducing ship disposal costs, MARAD
attributes the decrease in ship disposal prices almost exclusively to
foreign competition. However, other factors, such as larger annual
program funding and increases in the scrap value of steel, may have
also played a role.
What GAO Recommends:
GAO is making recommendations that would strengthen the management of
MARAD‘s ship disposal program, including developing a comprehensive,
integrated approach and changing the contracting method for disposal
services.
The Department of Transportation stated that MARAD is taking some
actions that may address GAO recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-264.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8365 or solisw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
MARAD Is Unlikely to Meet 2006 Deadline:
MARAD Has Made Limited Use of Alternative Disposal Methods because of
Several Barriers:
MARAD's Use of PRDAs to Scrap Ships Is Inappropriate:
Overseas Competition Just One Factor Contributing to Lower Prices:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Transportation:
Tables:
Table 1: Number of Obsolete Vessels in MARAD's Inventory, Fiscal Years
2001-04:
Table 2: Projected Number of Obsolete Vessels in MARAD's Inventory,
Fiscal Years 2005-06:
Table 3: Differences between MARAD's Budget Requests for Ship Disposal
and Appropriations, Fiscal Years 2001-05:
Table 4: MARAD's Performance Targets for Removing Obsolete Ships from
Fleet for Subsequent Disposal, Fiscal Years 2001-06:
Table 5: Completed Disposals by Disposal Method for Fiscal Years 2001-
04:
Table 6: Current Status of Congressionally Designated Ship Donations:
Table 7: Comparison of Industry Participation in PRDAs Versus Other
Solicitation Methods:
Table 8: Price Trends for Contracts by Fiscal Year Awarded:
Figures:
Figure 1: Ship during Early Stages of the Scrapping Process:
Figure 2: Partially Scrapped Ship in a Firm's Scrapping Facility:
Figure 3: Ship Near End of the Scrapping Process:
Figure 4: A High-Priority Ship Awaiting Disposal in the James River
Fleet:
Figure 5: Annual Average International Scrap Steel Prices, 1994-04:
Abbreviations:
CICA: Competition in Contracting Act:
DOT: Department of Transportation:
EPA: Environmental Protection Agency:
FAR: Federal Acquisition Regulation:
GAO: Government Accountability Office:
GPRA: Government Performance and Results Act:
IDIQ: indefinite delivery, indefinite quantity:
MARAD: Maritime Administration:
PCB: polychlorinated biphenyl:
PRDA: Program Research and Development Announcement:
SINKEX: Sinking Exercise:
Letter March 7, 2005:
The Honorable Solomon P. Ortiz:
Ranking Minority Member:
Subcommittee on Readiness:
Committee on Armed Services:
House of Representatives:
Dear Mr. Ortiz:
More than 100 deteriorating and obsolete ships that are part of the
National Defense Reserve Fleet[Footnote 1] are anchored along the East,
West, and Gulf coasts, awaiting disposal because they are no longer
needed for national defense. Many of them contain hazardous materials
such as asbestos, lead, polychlorinated biphenyls (PCB), and residual
oils and fuels that are typically found on older ships. Some of these
ships have been associated with oil spills, with the largest in 1998
costing about $1.4 million to clean up. Members of Congress, the
states, and environmental groups have expressed concerns about the
environmental hazards posed by these ships. The Maritime Administration
(MARAD), which is part of the Department of Transportation (DOT), is
responsible for the disposal of these obsolete ships.
Ship disposal is complicated by a number of factors. MARAD must comply
with numerous federal statutes that affect ship scrapping, including
those related to the treatment of hazardous materials.[Footnote 2] To
dispose of these ships, MARAD must also coordinate its efforts with
various federal agencies, individual states, and foreign governments.
For example, MARAD has to work with the states and the Environmental
Protection Agency (EPA) to ensure that hazardous materials are removed
from ships in compliance with federal and state environmental and
worker safety laws. MARAD has a number of methods that it can choose
from to dispose of these ships, including selling them to, or
contracting with, domestic or foreign scrapping companies to dismantle
them; sinking them to create artificial reefs; donating them to private
or public entities for various authorized uses; or transferring them to
the Navy for use in its deep-sinking training exercises. However, each
of these disposal methods has associated challenges. For example, the
number of domestic firms that have been interested in scrapping has
been limited. In addition, environmental, regulatory, and legal
barriers have limited opportunities to export ships for scrapping, and
have led to lower demand for donations and reefing.
MARAD's ship disposal program has long been recognized as a concern. In
the late 1990s, DOT's Inspector General and GAO both reported that
MARAD was making little progress in selling its obsolete ships to be
scrapped--at that time its predominate method for disposal. The reports
cited several constraints, including a 1994 government limitation on
overseas ship sales, a 1998 ban on overseas scrapping for environmental
reasons, and a decline in the domestic industry's interest in buying
ships. In 2000, DOT's Inspector General added MARAD's ship disposal
program to the department's list of high-priority management challenges
and made several recommendations to improve the ship disposal program,
including the need for MARAD to develop a disposal plan. In response to
the difficulties that MARAD was facing in selling its ships, Congress
specifically authorized[Footnote 3] MARAD in October 2000 to begin
paying for scrapping services but also directed MARAD to consider other
disposal methods in developing its disposal program. At that time,
Congress extended MARAD's deadline to complete the disposal of its
obsolete ship inventory from September 30, 2001, to September 30,
2006.[Footnote 4] To accomplish this, Congress has appropriated almost
$80 million to MARAD's ship disposal program from fiscal years 2001 to
2005. In addition, within 6 months after the enactment of the Defense
Authorization Act of 2001, Congress directed MARAD to report on its
ship disposal program and provide progress reports every 6 months
thereafter.[Footnote 5] As of December 2004, MARAD had submitted to
Congress its initial report and two of the progress reports.
Leading organizations embrace key principles to effectively implement
and manage programs. The Government Performance and Results Act of
1993, for example, embodies key principles that provide an effective
management framework to improve the likelihood of successfully
implementing programs and assessing results. The framework consists of
a number of critical elements considered essential in developing an
effective strategy, guiding resource allocations, and monitoring
results. Combined with effective leadership, these elements provide
decision makers with a framework to guide program efforts and the means
to determine if these efforts are achieving the desired results.
We were asked to review MARAD's ship disposal program and related
contracting and procurement processes. Specifically, our objectives
were to (1) determine whether MARAD will meet the statutory deadline of
September 2006 to dispose of its obsolete ships and, if not, what
factors may prevent it from doing so; and (2) assess the extent to
which MARAD has used alternative methods, other than ship scrapping, to
dispose of its obsolete ships and the barriers to using such
alternatives. In addition, we were asked to examine the appropriateness
of MARAD's primary procurement method (Program Research and Development
Announcements) for obtaining ship disposal services and the impact of
foreign competition and other factors on reducing ship disposal costs.
To determine whether MARAD will meet its September 2006 deadline and
identify factors affecting this goal and to assess whether MARAD has
considered alternative approaches to scrapping, we reviewed the
agency's performance plans and program status reports and applicable
laws and regulations. We also interviewed MARAD, Navy, and industry
representatives to discuss barriers to program success. To assess the
appropriateness of MARAD's acquisition methods for procuring ship
disposal services, we interviewed MARAD program, administrative, and
legal officials to identify what acquisition methods they used and what
their rationale was for their use. We also reviewed contract documents,
the Federal Acquisition Regulation, and case law. To assess the impact
of foreign competition and other factors on disposal prices, we
reviewed industry proposals and contracts to identify price trends and
interviewed industry representatives to get their perspectives on
factors affecting these trends. We determined that the data used in the
report were sufficiently reliable for meeting our purposes. We
conducted our review between December 2003 and November 2004 in
accordance with generally accepted government auditing standards. A
detailed description of our scope and methodology is provided in
appendix I.
Results in Brief:
MARAD is unlikely to meet the statutory deadline of September 30, 2006,
to complete the disposal of its obsolete ships, thereby increasing the
risk of costly environmental contamination. From the time that the
deadline was established in October 2000 until September 2004, MARAD
had completed the disposal of 18 ships,[Footnote 6] or about 12 percent
of its total of 157 obsolete ships. It had also awarded contracts for
29 other ships. At this pace, MARAD is unlikely to complete the
disposal of the remaining 110 ships and the additional 30 ships it
expects to receive within the next 2 years. MARAD's current approach,
which has resulted in disposing of an average of about 5 ships per
year, is not sufficient for disposing of the remaining ships over the
next 2 years. MARAD's slow progress is due primarily to program leaders
not developing a comprehensive management approach to better focus the
program's efforts on meeting the myriad of challenges that the program
faces in eliminating its inventory in a timely and efficient manner.
While MARAD has adhered to some management principles that are
compatible with the Government Performance and Results Act and those
used by leading organizations, such as including the ship disposal
program in MARAD's overall strategic and performance planning process,
better progress has not been made because several key management
elements that leading organizations usually embrace are missing or are
inadequate. These include (1) no integrated strategy with goals,
approaches, and milestones for meeting the 2006 deadline; (2) no
identification of long-term funding resources to achieve program goals;
(3) inadequate performance measures to track progress toward achieving
the goals; (4) inadequate identification of the external factors,
particularly those that are legal, regulatory, and environmental, which
could impact the program's progress, and inadequate plans to mitigate
these factors; (5) inadequate formal decision-making framework; and (6)
no formal program evaluations. In the absence of a comprehensive
management approach that includes all of these key elements, MARAD's
ship disposal program lacks the vision needed to sustain a long-term
effort. Moreover, while MARAD was required to provide Congress with an
initial plan and subsequent progress reports thereafter, it has
submitted only two out of a possible seven of these required progress
reports. As a result of weaknesses in MARAD's management approach,
managers are not in a position to make sound decisions concerning the
ship disposal program. In addition, MARAD has not been able to provide
Congress and other interested parties with a reasonable timetable and
the associated annual funding requirements needed to meet the 2006
deadline, nor has it clearly articulated the areas that congressional
assistance may be needed to expedite the disposal of these
deteriorating ships, which continue to pose potentially costly
environmental threats to the waterways near the sites where these ships
are stored.
Since Congress directed MARAD in 2000 to consider alternative ship
disposal methods to scrapping when developing its program, MARAD has
made limited use of these methods--artificial reefing, deep-water
sinking, and donation--because of a number of environmental, financial,
and legislative barriers. From October 2000 through September 2004,
MARAD had disposed of 17 ships through scrapping services or sales
contracts and only 1 ship through an alternative method--artificial
reefing. It had not disposed of any ships through the Navy's deep-water
sinking program[Footnote 7] or the ship donation program. With
congressional support, MARAD recently took a number of actions to
reduce the impediments that have limited its use of alternative
methods. For example, MARAD and EPA drafted national guidelines for
remediating ships for the artificial reefing program; MARAD and the
Navy signed a memorandum of agreement to include MARAD's obsolete ships
in the Navy's deep-water sinking program; and MARAD received new
authority[Footnote 8] to donate ships without special legislation.
Despite these positive steps, MARAD may be years away from increasing
the number of disposals using these alternative methods. MARAD lacks an
overall plan that could expand the use of these alternative disposal
methods. For example, MARAD has not developed policies that could help
guide its allocation of funds among all of its available ship disposal
methods. As a result, MARAD may be losing opportunities to dispose of
more of its obsolete ships using these alternative methods in the most
cost-efficient and timely manner.
Since fiscal year 2002, MARAD has relied primarily on one procurement
method--Program Research and Development Announcements (PRDA)--to
acquire ship scrapping services, but this method is not appropriate for
this purpose. Since October 2002, MARAD has awarded contracts for 34
ships through PRDA solicitations and only 4 through another procurement
method.[Footnote 9] According to MARAD, PRDAs are a variant of broad
agency announcements, an authorized procurement process under the
Federal Acquisition Regulation (FAR) and the Competition in Contracting
Act of 1984. PRDAs are designed to enable federal agencies to acquire
basic and applied research and that part of development not related to
the development of a specific system or hardware procurement. MARAD
officials told us that the PRDA method provides greater flexibility and
allows firms to propose new or innovative solutions to ship disposal.
In addition, they said they chose PRDAs to attract a larger number of
responses from qualified firms and, thereby, increase competition and
reduce costs. However, our analysis of MARAD's PRDAs and the contracts
awarded under PRDAs through February 2004 showed that MARAD was not
contracting for research or development but instead was acquiring
conventional ship scrapping services. Moreover, we found that while the
PRDA method attracted a larger number of firms, other factors, such as
MARAD's access to increased appropriations and higher scrap metal
prices, could have accounted for greater competition and reduced costs.
MARAD's use of PRDAs has led to a lack of transparency in the contract
award process and has raised concerns of fairness among industry
participants.
While we could not isolate the specific impact of foreign competition
and other factors on reducing the cost of ship disposal, MARAD
attributes the overall decrease in ship disposal costs almost
exclusively to overseas competition. However, several other factors are
likely to have played a role. Since MARAD received specific authority
to procure scrapping services in fiscal year 2001, there has been a
steady decline in the price per ton to scrap ships. In 2001, MARAD paid
contractors an average of about $250 per ton to scrap ships; in 2004,
this cost fell to about $109 per ton--a decrease of about 56 percent.
While the addition of overseas competition has likely been a factor,
other factors, such as larger annual program funding and increases in
the scrap value of steel, have probably also played a role.
We are making recommendations that would strengthen the management of
MARAD's ship disposal program, including developing a comprehensive,
integrated approach and changing the method it uses to contract for
ship disposal services. In commenting on a draft of this report, DOT
did not directly comment on whether it agreed with our recommendations,
but it stated that MARAD is taking some actions that may address them.
Specifically, DOT stated that MARAD agrees that the time is right to
ensure that its planning efforts are up to date and are appropriately
comprehensive and MARAD will provide an updated vision of its
comprehensive integrated approach to program management in subsequent
reports to Congress. DOT also commented that MARAD has revised its
contracting approach that has resulted in the termination of its use of
PRDAs.
Background:
As part of DOT, MARAD serves as the federal government's disposal agent
for government-owned merchant vessels weighing 1,500 gross tons or
more.[Footnote 10] MARAD's ship disposal program, in the Office of Ship
Operations, is responsible for disposing of these vessels.
Historically, MARAD has disposed of its obsolete ships primarily by
selling them to overseas scrapping companies. From 1983 to 1994, MARAD
scrapped over 200 vessels through overseas sales, which represented
close to 100 percent of all of MARAD's scrapping activity. Ships were
sold "as is/where is" to the highest bidder. The sale of vessels for
overseas scrapping was curtailed in 1994 because of concerns raised by
EPA about the presence of PCBs in various shipboard components. The
Toxic Substances Control Act and EPA's implementing regulations govern
the use of PCBs.[Footnote 11] According to MARAD, the act and EPA
regulations limit MARAD's ability to export vessels for disposal
without first removing regulated PCBs. Ship scrapping is also subject
to other federal, state, and local government laws that are meant to
protect the environment and ensure worker safety. In addition, overseas
disposal can be more complicated and time consuming because it requires
the involvement of foreign governmental agencies and is subject to
additional laws related to exporting hazardous materials. Similarly,
disposing of ships through artificial reefing also requires
coordination with several federal agencies.
After overseas sales were curtailed in 1994 and halted in 1998, MARAD
had little success in selling its obsolete ships domestically, leading
to a backlog of ships awaiting disposal. At the same time, the fleet
had several well-publicized leaks, which raised concerns about the risk
of continued storage.
In the 2001 Defense Authorization Act, Congress extended MARAD's
deadline for disposing of all the vessels in the National Defense
Reserve Fleet that are not assigned to the Ready Reserve Force
component of that fleet or otherwise designated for a specific purpose
as required by section 6(c)(1) of the National Maritime Heritage Act of
1994.[Footnote 12] The 2001 Authorization Act moved the deadline from
September 30, 2001, to September 30, 2006,[Footnote 13] and specified
that MARAD dispose of vessels:
. . . in the manner that provides the best value to the Government,
except in any case in which obtaining the best value would require
towing a vessel and such towing poses a serious threat to the
environment; and:
. . .through qualified scrapping facilities, using the most expeditious
scrapping methodology and location practicable. Scrapping facilities
shall be selected—on a best value basis consistent with the Federal
Acquisition Regulation, as in effect on the date of the enactment of
this Act, without any predisposition toward foreign or domestic
facilities taking into consideration, among other things, the ability
of facilities to scrap vessels--
(1) at least cost to the Government;
(2) in a timely manner;
(3) giving consideration to worker safety and the environment; and:
(4) in a manner that minimizes the geographic distance that a vessel
must be towed when towing a vessel poses a serious threat to the
environment.
The 2001 Authorization Act also required MARAD, within 6 months of its
enactment, to provide Congress with a report on its program for
disposing of ships and subsequent progress reports every 6 months
thereafter. As of September 2004, MARAD had submitted two reports to
Congress.[Footnote 14]
In its first report[Footnote 15] to Congress, issued in April 2001,
MARAD stated that its primary goal for the ship scrapping program was
to meet the statutory deadline. The report also provided a plan to
dispose of all ships that MARAD expected would be in its inventory
through the deadline. Highlights from the report included that MARAD
would use fiscal years 2001 and 2002 to refine cost estimates specific
to merchant type ships, and from fiscal years 2003 through 2006, would
dispose of 35 ships per year mostly through domestic scrapping. MARAD,
at that time, estimated that it would be able to scrap 140 ships at an
average cost of $2.5 million per ship and donate or reef 15 ships by
the 2006 deadline. Also, in accordance with the statute,[Footnote 16]
MARAD developed milestone dates for disposal of each ship and developed
an approach that focused disposal efforts on its highest priority ships
(ships in the worst condition) considering the condition of the vessel
hulls; the amount, type, and location of potential pollutants on board;
and the vessel spill history. MARAD stated it recognized that the
immediate threat that these high-priority ships posed at the sites, in
all likelihood, would result in using the domestic scrapping industry
in the near term, and stated it would continue to seek innovative
solutions to the challenging issue of ship disposal. MARAD also stated
that, while there was much scrapping capacity overseas, exporting ships
was banned by the Toxic Substances Control Act because PCBs can be
found in shipboard systems.
The second report[Footnote 17] to Congress, issued in June 2002,
indicated that MARAD no longer expected that it could meet the
statutory deadline of September 30, 2006, if it used domestic scrapping
as the predominate disposal method because no funds had been
appropriated for the program in fiscal year 2002 and that the prospects
for future funding were considered uncertain. The report also discussed
an additional planned procurement method to contracting by negotiation,
which was the use of PRDAs.
At the time the 2006 deadline was set, the reserve fleet consisted of
115 vessels designated as obsolete and available for disposal. Of
these, 40 were considered high priority for disposal because of their
deteriorated condition. MARAD projected that another 40 ships would
enter the fleet, for a total of 155 ships that it expected would need
disposal. These ships are located at MARAD's three anchorages: with the
James River Reserve Fleet (near Fort Eustis, Virginia) having the most
ships and most of the highest priority ships; the Beaumont Reserve
Fleet (Beaumont, Texas); and the Suisun Bay Reserve Fleet (near
Benicia, California).
In disposing of its nonretention vessels, MARAD has usually had its
excess ships dismantled, or scrapped--a labor intensive approach that
poses certain environmental and worker safety risks. Ships are normally
dismantled from the top down and from one end to the other, using
torches and/or shears to cut away large parts of the vessel. Cranes are
often used to move larger metal pieces to the ground where they can be
cut into the shapes and sizes required by the foundry or smelter where
the scrap will be sent. The scrapping process produces some products,
such as steel and other metals, that can be sold to recyclers.
Remediation of hazardous materials, such as asbestos, PCBs, lead,
mercury, and cadmium, takes place before, as well as during, the
dismantling process. If it is not done properly, ship scrapping can
pollute the ground and water around the scrapping site and jeopardize
the health and safety of the workers involved in the scrapping process.
The following figures illustrate various stages of the scrapping
process.
Figure 1: Ship during Early Stages of the Scrapping Process:
[See PDF for image]
[End of figure]
Figure 2: Partially Scrapped Ship in a Firm's Scrapping Facility:
[See PDF for image]
[End of figure]
Figure 3: Ship Near End of the Scrapping Process:
[See PDF for image]
[End of figure]
MARAD Is Unlikely to Meet 2006 Deadline:
MARAD is unlikely to meet the statutory deadline of September 30, 2006,
to dispose of its inventory of obsolete ships. Since October 2000, when
Congress established the deadline, MARAD has disposed of only 18 ships,
or about 12 percent of its inventory. There still remain more than 100
ships still needing disposal. MARAD's current approach, which has
resulted in an average of about 5 ships disposed of per year, has not
been sufficient to meet the deadline. The ship disposal program's slow
progress stems primarily from program leaders not establishing a
comprehensive management approach that better focuses the program's
efforts on meeting the myriad of challenges that the program faces in
eliminating its inventory in a timely and efficient manner. Key
elements necessary for effective program management that are missing or
inadequate include (1) no integrated strategy or milestones for meeting
the 2006 deadline; (2) no identification of funding resources needed to
meet the 2006 deadline; (3) inadequate performance measures; (4)
inadequate identification of the legal, regulatory, and environmental
external impediments that could impact progress; (5) inadequate formal
decision-making framework; and (6) no formal program evaluations. In
the absence of a comprehensive management approach that includes all of
these key elements, MARAD's ship disposal program lacks the vision
needed to sustain a long-term effort. MARAD has also not provided
Congress with all of the required reports on the program's progress. As
a result, MARAD has not been able to ensure Congress that it can
dispose of its obsolete ships in a timely way.
MARAD Has Made Slow Progress toward 2006 Deadline:
Since October 2000, when Congress specifically authorized MARAD to pay
for ship disposal services and set a September 30, 2006, deadline to
dispose of all vessels, the agency has made slow progress toward
achieving this goal. In 2000, MARAD reported that it had 115 ships in
its inventory.[Footnote 18] Between October 2000 and September 2004,
MARAD received 42 additional ships through transfers,[Footnote 19]
bringing the total number of ships that needed to be disposed of to 157
(the beginning inventory of 115 plus 42 transfers). Of these 157 ships,
18 ships, or about 12 percent of the inventory (as of September 2004),
had been disposed of, leaving 139 still in the inventory (see table
1).[Footnote 20]
Table 1: Number of Obsolete Vessels in MARAD's Inventory, Fiscal Years
2001-04:
Obsolete vessels in inventory: On hand, start of year;
Fiscal year 2001: 115[A];
Fiscal year 2002: 134;
Fiscal year 2003: 133;
Fiscal year 2004: 132;
Total: NA.
Obsolete vessels in inventory: Transfers into fleet;
Fiscal year 2001: 20;
Fiscal year 2002: 7;
Fiscal year 2003: 2;
Fiscal year 2004: 13;
Total: 42.
Obsolete vessels in inventory: Completed disposals;
Fiscal year 2001: 1;
Fiscal year 2002: 8;
Fiscal year 2003: 3;
Fiscal year 2004: 6;
Total: 18.
Obsolete vessels in inventory: On hand, end of year;
Fiscal year 2001: 134;
Fiscal year 2002: 133;
Fiscal year 2003: 132;
Fiscal year 2004: 139;
Total: NA.
Legend: NA = Not available.
Source: GAO analysis of MARAD Fleet Reserve Inventory Reports, Fiscal
Years 2001-2004.
[A] This number includes three ships that had existing sales contracts
prior to fiscal year 2001 but were included in the 2001 inventory.
[End of table]
Of the remaining 139 ships, as of September 2004, MARAD had awarded
contracts for the disposal of another 29, leaving 110 ships that were
still awaiting disposal actions. The status of the 29 ships under
contract is as follows:
* Twenty ships are waiting to be moved to a scrapping company. Of
these, 9 are awaiting a court ruling on whether MARAD will be able to
export them to the United Kingdom.
* Four ships have been towed but have not begun scrapping. These ships
were towed in October 2003 to the United Kingdom where they are waiting
for a U.K. company to obtain the proper permits to scrap them.
* Five ships are either at scrapping facilities in the process of being
dismantled or are en route to scrapping facilities.
Of the ships that have been part of MARAD's inventory since October
2000, more than 40 ships have been designated as high priority for
disposal because of their severely deteriorating conditions. Ships in
this category have had known holes in their underwater hulls that may
or may not have been patched, and the potential for additional holes is
considered to be moderate or high. Consequently, these ships are
considered to pose the most immediate threat to the environment. Figure
4 shows (center) one of the high-priority ships in the James River
Fleet awaiting disposal; MARAD awarded a contract to dispose of this
ship in September 2004, but the ship had not yet been removed from the
fleet.
Figure 4: A High-Priority Ship Awaiting Disposal in the James River
Fleet:
[See PDF for image]
[End of figure]
Based on the average rate of ship disposal of about 5 per year, it is
unlikely that MARAD will be able to get rid of the 110 obsolete ships
that were in its September 2004 inventory by the 2006 deadline
(assuming that all of the ships already under contract are disposed of
by then). MARAD requested and received $21.6 million to dispose of 15
ships in the fiscal year 2005 budget cycle and a yet-unspecified amount
in its fiscal year 2006 budget. At the same time, MARAD expects to
receive up to 30 more obsolete ships through transfers during the next
2 years. As table 2 shows, we estimate that MARAD will likely have more
than 100 obsolete ships in its inventory in September 2006.
Table 2: Projected Number of Obsolete Vessels in MARAD's Inventory,
Fiscal Years 2005-06:
Obsolete ships in inventory: On hand, start of year[A];
Fiscal year 2005: 139;
Fiscal year 2006: 154.
Obsolete ships in inventory: Projected transfers in;
Fiscal year 2005: 15;
Fiscal year 2006: 15.
Obsolete ships in inventory: Projected disposals of ships under
contract;
Fiscal year 2006: 29[B].
Obsolete ships in inventory: Projected disposals under future
contracts;
Fiscal year 2006: 30[C].
Obsolete ships in inventory: Projected on hand, end of year;
Fiscal year 2005: 154;
Fiscal year 2006: 110.
Source: GAO analysis of MARAD data.
[A] The number for fiscal year 2005 was the actual number of ships on
hand and included one ship that had been sold but had not been
completely disposed of. The on hand number for fiscal year 2006 is a
projection. As of December 2004, 151 ships were on hand.
[B] Assumes all ships under contract, including ships delayed by
litigation, can be completely disposed of by end of fiscal year 2006,
although some disposals may occur in fiscal year 2005.
[C] Assumes that MARAD can meet its contract award projections in
fiscal years 2005 and 2006 and that disposals can be completed by the
end of fiscal year 2006, although some disposals may occur in 2005.
[End of table]
MARAD's Slow Progress Is due to Lack of Comprehensive Management
Approach:
Sound management principles, such as those embodied in the Government
Performance and Results Act and used by leading organizations, include
the need for developing approaches to meet program goals, measuring
performance, identifying resource requirements, and reporting on the
degree to which goals have been met. Combined with effective
leadership, these elements provide decision makers with a framework to
guide program efforts and the means to determine if these efforts are
achieving the desired results. While MARAD has adhered to some of these
principles, for example, by including the ship disposal program in its
strategic and performance planning process, program leaders have not
developed a comprehensive approach to better focus its efforts on
overcoming the challenges related to eliminating its obsolete ship
inventory in a timely manner. Key elements necessary for effective
program management that are missing or inadequate include (1) an
integrated strategy and milestones for meeting the 2006 deadline; (2)
an identification of total resources needed to achieve the program's
goals; (3) measures of progress toward achieving the goals; (4)
identification of external factors, particularly those related to
legal, regulatory, and environmental issues, which could impact the
program's progress, and strategies to mitigate these factors; (5) a
decision-making framework; and (6) an evaluation and corrective action
plan. Although the 2001 Defense Authorization Act[Footnote 21] required
MARAD to submit a progress report on the program to Congress within 1
year of its enactment and every 6 months thereafter, the agency had
submitted only three reports through December 2004. The following
discussion focuses on the key elements that are missing or inadequate
in MARAD's management approach.
* Integrated strategy to meet stated goals and milestones for
completing ship disposal. Leading organizations have an integrated
strategy that identifies program goals and specifies an approach and a
timetable for completing the goals. While the program has a requirement
to dispose of its entire inventory by September 2006 and MARAD has
stated this requirement as one of its program goals, the program does
not have a current strategy to achieve this requirement using the
available disposal methods (e.g., domestic and overseas scrapping,
sales, artificial reefing, deep-water sinking, or donations). In its
2001 report to Congress, MARAD proposed a general strategy for meeting
the deadline by identifying 140 ships that could be scrapped through
service contracts and 15 ships that could be disposed of by donations
or artificial reefing. However, MARAD abandoned this approach in fiscal
year 2002 when the program did not receive any funding, and since that
time, it has not developed a new integrated strategy for disposing of
all ships. Instead, MARAD officials told us that their current strategy
consists of a market-based approach that is responsive to the current
proposals made by interested parties. Based on these proposals,
specific ships are matched to the various available disposal methods.
These officials also stated that, in the rare instances where competing
proposals exist for the same ship, MARAD makes a decision based on best
value/best interest to the government. However, because this situation
occurs infrequently and because the factors that need to be considered,
such as cost and timing, vary greatly, MARAD does not document this
decision-making process.
Moreover, while MARAD has identified the expeditious disposal of high-
priority ships (because of their poor condition) as another program
goal, it has not always matched its planned disposal methods to this
goal. For example, while past MARAD reports and briefings identified
domestic disposal as the most expeditious method and indicated that
this method would likely be used for some of its high- priority ships
to minimize towing distance, MARAD awarded a ship disposal contract in
2003 to an overseas firm that included many high- priority ships, even
though export was considered more complicated and time consuming. To
determine the feasibility and advisability of exporting ships overseas
for scrapping, in 2002, Congress directed MARAD to conduct at least one
overseas pilot program for up to four ships.[Footnote 22] As part of
this effort, MARAD worked with EPA to determine the circumstances under
which the export of certain ships would be allowed. Subsequently, in
2003, MARAD awarded a scrapping services contract covering 13
ships,[Footnote 23] which was 9 more than authorized by the pilot
program, and included 10 that were considered to be high priority for
disposal, to a company in the United Kingdom. Prior to selecting the
ships to be included in the overseas contract, MARAD did not determine
the high-priority ships' suitability for being towed across the ocean.
According to program documents, one of the high-priority ships
initially proposed for contract inclusion sprung a leak just before the
contract was signed and was replaced by another ship. Subsequently, a
citizen's group lawsuit led to a U.S. court limiting the number of
ships that MARAD could initially export to 4 (consistent with the
number that would comprise the pilot program). MARAD selected 4 ships
for export that were among the ships in the best condition included in
the contract, in part, because they could be prepared for towing the
quickest, according to a program official. As a result, 7 of the
highest priority ships included in the overseas contract remained at
the fleet. In the following year, from June through September 2004,
MARAD included these 7 high-priority ships (originally part of the
contract to the overseas firm) in contract awards to domestic
companies, to hasten their departure from the fleet since the court had
not yet determined if these ships could be exported overseas.
In addition, MARAD does not have specific milestones to dispose of its
entire inventory of obsolete ships. MARAD's 2001 progress report to
Congress outlined an approach to meet the 2006 deadline, however, in
its 2002 report to Congress, MARAD expressed concerns that it could not
meet the deadline but did not provide a timetable for what it could
achieve. In a 2004 progress report to Congress, MARAD proposed an
alternative plan to meeting the statutory 2006 deadline. Instead of
eliminating the entire obsolete ship inventory, MARAD suggested that it
would dispose of the remaining ships in its inventory at a rate that
would exceed the number of new vessels entering the fleet. MARAD would
work toward an "end-state" with a target goal of eliminating the
backlog of vessels that accumulated in the 1990s by September 30, 2006.
MARAD's proposal would include removing all "high" and "moderate"
priority ships (about 65) at a rate of 20 to 24 ships per year and
keeping only "low" priority ships at the fleet sites. However, for
fiscal year 2005, MARAD is planning to dispose of only 15 ships with
the $21.6 million that was appropriated.
* Identification of resources needed to achieve goals. Good management
principles call for the identification of resources, including funding,
which are needed to accomplish the expected level of performance. In
its 2001 report to Congress, MARAD provided a general estimate of costs
to dispose of its inventory of 155 ships by the 2006 deadline, and it
stated that it planned to further refine cost estimates as additional
data relating to merchant-type vessels were collected during fiscal
years 2001 and 2002. However, these costs were not converted into a
long-term funding plan linked to disposing of all obsolete ships by
2006. In addition, MARAD did not revise its cost estimates based on
actual contracting experiences. For example, the 2001 report estimated
that it would cost about $350 million to scrap 140 of the 155 vessels-
-an average of about $2.5 million per ship--using ship scrapping
services contracts. However, MARAD's budget requests for ship disposal
for fiscal years 2002 through 2005 have totaled only $54.1 million,
about one-sixth of the $350 million estimate. Congress has appropriated
a total of $78.8 million over the same period. Table 3 shows MARAD's
annual budget requests, associated appropriations, and the difference
between the two.
Table 3: Differences between MARAD's Budget Requests for Ship Disposal
and Appropriations, Fiscal Years 2001-05:
Current dollars (in millions).
Budget request;
Fiscal year 2001[A]: NA;
Fiscal year 2002: $10.0;
Fiscal year 2003: $11.1;
Fiscal year 2004: $11.4;
Fiscal year 2005: $21.6;
Total: $54.1.
Direct appropriation;
Fiscal year 2001[A]: NA;
Fiscal year 2002: $0;
Fiscal year 2003: $11.1;
Fiscal year 2004: $16.1;
Fiscal year 2005: $21.6;
Total: $48.8.
Appropriations provided through the Navy;
Fiscal year 2001[A]: $10.0;
Fiscal year 2002: $0;
Fiscal year 2003: $20.0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Total: $30.0.
Total appropriated funds;
Fiscal year 2001[A]: $10.0;
Fiscal year 2002: $0;
Fiscal year 2003: $31.1;
Fiscal year 2004: $16.1;
Fiscal year 2005: $21.6;
Total: $78.8.
Difference from budget request;
Fiscal year 2001[A]: NA;
Fiscal year 2002: $(10.0);
Fiscal year 2003: $20.0;
Fiscal year 2004: $4.7;
Fiscal year 2005: $0;
Total: $24.7.
Legend: NA = Not applicable.
Source: GAO analysis of MARAD funding data.
[A] MARAD did not request any fiscal year 2001 appropriations because
it did not receive authorization to pay for scrapping services until
late in the budget cycle.
[End of table]
MARAD officials said they did not incorporate the estimated costs to
achieve the 2006 deadline into a funding plan because MARAD did not
believe that Congress would fund the levels identified in its 2001
report and because they believed that environmentally sound, qualified
foreign facilities that could scrap ships for less than the $350
million estimate existed. Instead, MARAD officials said that their
budget requests reflected a consistent funding level that they believed
Congress would support; recognized the limited capacity of the most
expeditious method (scrapping at domestic facilities); allowed MARAD to
eliminate high-priority ships prior to the 2006 deadline; and provided
a sufficient disposal rate while MARAD investigated and pursued
potentially more cost-effective overseas alternatives.
* Appropriate performance measures. Although DOT's and MARAD's
performance plans have tracked the ship disposal program's progress
since 2001, the department-level performance measures that are being
used are not linked to the program's goal of disposing of all obsolete
ships by September 30, 2006. For example, MARAD's 2004 performance plan
links the ship disposal program to DOT's facility cleanup performance
goal, which aims to ensure that DOT operations "leave no significant
environmental damage behind." To measure progress toward the facility
cleanup goal, MARAD's performance measure uses the number of vessels
that have been physically removed from the fleet for subsequent
disposal rather than the number of ships that have been completely
disposed of as called for by statute. MARAD officials stated that the
reason the chosen performance measure is not more directly linked to
the statutory requirement is because of MARAD's recognition, in 2002,
that the deadline was unachievable due to the program's inconsistent
funding and disposal impediments. A MARAD official stated that tracking
the number of removed ships as a performance measure is appropriate
because removing ships contributes to the facility cleanup goal.
However, using removal rather than disposal as a performance measure
may obscure MARAD's actual progress toward achieving the disposal
deadline cited in the statute. For example, MARAD counted toward
meeting its fiscal year 2004 removal target the four ships that were
towed to the United Kingdom in October 2003, but, as of November 2004,
these ships were still fully intact and awaiting permit approvals
before scrapping could begin. In another example, MARAD program
officials reported to senior managers in March 2004 that the program
had exceeded its fiscal year 2004 ship performance target for removals
by 10 ships. However, 6 months later, only 3 of these ships had been
completely disposed of. MARAD officials stated that they also use other
measures not tracked in its performance plan. For example, the number
of contracts awarded and ships disposed of are recorded continuously
and frequently communicated to program officials. While we found that
MARAD does collect the data, this information is not reported against
established targets in its performance reports, reports to Congress, or
budget requests making assessing program progress difficult.
Finally, MARAD's performance targets are set too low to complete the
disposal of the 155 obsolete ships in MARAD's 2001 inventory by the
2006 deadline. As table 4 shows, MARAD's projected performance targets
for the ship disposal program were to remove a total of 29 ships--less
than 20 percent of the inventory--from the fleet for subsequent
disposal from fiscal year 2001 to 2005.
Table 4: MARAD's Performance Targets for Removing Obsolete Ships from
Fleet for Subsequent Disposal, Fiscal Years 2001-06:
Target for removal;
Fiscal year 2001: 3;
Fiscal year 2002: 3;
Fiscal year 2003: 4;
Fiscal year 2004: 4;
Fiscal year 2005: 15;
Fiscal year 2006: NA[A];
Total: 29.
Legend: NA = Not available.
Source: MARAD's fiscal year 2005 performance plan.
[A] MARAD's 2006 target will be submitted with the fiscal year 2006
budget request.
[End of table]
MARAD officials acknowledged that while the targets were too low to
meet the statutory deadline, they were more realistic and achievable
given the program's constraints such as unpredictable funding. These
officials stated that a more meaningful goal related to the statutory
requirement would be to dispose of as many ships that represented the
greatest risk to the environment, as possible, given the available
resources. MARAD stated that it has reported this goal to focus on high-
priority ships in its budget request and reports to Congress. While
MARAD has stated this general goal, it has not developed specific
performance measures with targets to track its progress toward
achieving this goal.
* External factors and mitigation plans. Good management practices
include identifying external factors that may be impediments to program
success and actions needed to mitigate these impediments. MARAD has
cited a number of external factors that provide challenges to the ship
disposal program in briefings and in some of its strategic planning
documents. These challenges include domestic disposal capacity
limitations; environmental, legal, and regulatory restrictions on
export; and similar restrictions on other disposal options.
Specifically, MARAD has stated that the existing domestic ship
recycling capacity is very limited and must serve both MARAD's and the
Navy's needs. Additionally, foreign disposal remains a challenge
because of the Toxic Substances Control Act prohibition on the export
of PCBs, the extensive regulatory requirements to obtain an exemption
from the act, and legal challenges. As a result, MARAD has concluded
that export is not commercially viable for ships containing PCBs. MARAD
has stated that other options, such as artificial reefing, donations,
and deep sinking of vessels, are also limited, in part, by the cost of
preparing ships to meet environmental requirements. However, MARAD's
plans do not clearly describe the linkage between these factors and the
program goals they impede or specify how their impact can be reduced.
For example, while MARAD's strategic plan cites the lack of domestic
disposal opportunities as an impediment to the program, the plan is not
clear on how this impediment would keep MARAD from meeting its stated
goal of completing the disposal of all of its high-priority ships or
its target of removing 4 to 15 ships per year. Also, the plan does not
specify the actions that MARAD might take that could increase domestic
capacity or foster existing capacity. In addition, MARAD has taken a
number of actions to address impediments related to overseas scrapping,
artificial reefing, donations, and deep-water sinking, which may lead
to some progress in the future. However, these actions do not appear to
have been done in a systematic manner nor linked to specific program
goals. Such an effort would allow MARAD to systematically identify and
assess the factors that pose risk to the program, and would allow MARAD
to prioritize its actions in order to increase the likelihood that its
actions could successfully influence the factors that impede the
program from meeting its goals. Until MARAD develops a process that
focuses its actions on long-term program goals and appropriate
performance measures, it will be difficult for MARAD to assess how
external factors may impede program goals and the actions needed to
reduce them.
* Formal decision-making framework. Successful organizations establish
a decision-making framework that encourages the appropriate level of
management review and approval, supported by the proper technical and
risk analyses. A well-thought-out review and approval framework can
mean program decisions are made more efficiently and are supported by
better information. Some leading organizations have review processes in
place that determine the level of analysis and review that will be
conducted based on the size, complexity, and cost of the project.
Projects that are crucial to the program's strategy usually require
more analysis, support, and review than projects that have less
organizationwide impact.
We found that MARAD's decision-making framework lacks many of these
elements. For example, MARAD does not have a formal decision-making
process that specifies how program oversight is to be provided and what
decisions need to be reviewed by senior leadership, and it has no
formal program documents that describe how the various offices will
interact. MARAD has some policies that generally describe roles and
responsibilities for key offices involved with ship disposal. According
to these policies, the MARAD Administrator is to provide general
direction and supervision to the Associate Administrator for National
Security, whose responsibilities include the executive direction of the
Office of Ship Operations. Within this office is the Ship Disposal
Program Office that, in coordination with other offices, develops and
administers the ship disposal program. MARAD officials stated that
while the process is not well documented, they believed that program
participants understood their roles and responsibilities and that
senior management is aware of issues affecting the program. MARAD does
not follow a formal process that uses written guidance and does not
have an approved program plan that addresses all elements of the
program. In addition, MARAD program officials could not provide us with
analytical results to support key program decisions. For example, MARAD
did not have an analysis to support its position that domestic ship
scrapping capacity is limited, which led it to consider foreign
scrapping capacity to be of greater importance to the program. MARAD
officials stated that the capacity and capabilities of the domestic
industry were obvious through the data associated with the industry
responses to disposal solicitations. These officials stated that ship
disposal is not a growth industry in the United States and a formal
capacity analysis would not have benefited the program because the
results would have been largely theoretical. Instead, these officials
told us that the domestic industry's cost-effective capacity is evident
through the proposals received during disposal solicitations. We
disagree that there would be no benefit to conducting a capacity
analysis. Such an analysis could provide the basis to determine
throughput levels for planning purposes in developing funding plans for
the program. While MARAD stated that ship disposal is not a growth
industry, in 2004, MARAD awarded contracts to two firms that had not
participated in past solicitations.
* Program evaluation and corrective action plans. Program evaluations
are defined as objective and formal assessments of the results, impact,
or effects of a program or policy. Such information can be used to
assess the extent to which performance goals are met and identify
appropriate corrective actions for achieving unmet goals. While MARAD
had not performed an evaluation since it received its new authority in
fiscal year 2001, officials stated that the agency initiated the
program's first evaluation in June 2004 and expects to complete it as
early as January 2005. This evaluation could identify any corrective
actions that may be needed for the program to improve its performance.
* Periodic progress reports to Congress. The 2001 Defense Authorization
Act required MARAD, within 6 months of its enactment, to provide
Congress with an initial report on the disposal program and to submit
progress reports every 6 months thereafter. Since 2000, MARAD had
submitted only three out of a possible eight reports that were required
to communicate the program's status through December 2004. In April
2001, MARAD provided its initial report to Congress addressing aspects
of its plan. In June 2002, it submitted a second report updating the
program's status since the 2001 report. A third report, which had been
in draft format for over a year, was submitted to Congress in October
2004.[Footnote 24] Failure to provide these reports has left Congress
without information that could be useful in its decision-making process.
As a result of weaknesses in MARAD's management approach, the program
lacks a clear vision to guide program decision making concerning the
ship disposal program. Missing management elements such as the lack of
an integrated strategy, resource identification, and inadequate
performance measures reflect this lack of a vision and undermine
MARAD's efforts to sustain a long-term effort. In addition, MARAD has
not been able to provide Congress and other stakeholders with a
reasonable timetable and the associated annual funding requirements
needed to meet the 2006 deadline, nor has it clearly articulated the
areas that congressional assistance may be needed to expedite the
disposal of these deteriorating ships that continue to pose potentially
costly environmental threats to the waterways near the sites where
these ships are stored.
MARAD Has Made Limited Use of Alternative Disposal Methods because of
Several Barriers:
Although Congress directed MARAD in fiscal year 2001 to consider
alternative methods in designing its ship scrapping program, the
program has made only limited use of these methods--artificial reefing,
deep-sea sinking, and donations--because of a number of environmental,
financial, and legislative barriers. With the support of Congress,
MARAD has recently taken a number of actions to address these
impediments. Despite these positive steps, MARAD may still be years
away from increasing the number of disposals using these alternative
methods. MARAD has not developed an overall plan that could increase
the use of alternative disposal methods.
In fiscal year 2001,[Footnote 25] Congress directed MARAD to consider
alternative methods in designing its ship scrapping program. However,
MARAD has used an alternative method for ship disposal--artificial
reefing--only once since that time, and work on this disposal action
started prior to 2001 (see table 5). At the same time, MARAD has not
yet disposed of any ships through deep-water sinking or ship donations.
Instead, MARAD has focused on ship scrapping--either by awarding
contracts or selling the ships to scrapping firms to dismantle them--to
dispose of 17 of the 18 ships for which it has completed disposal
actions. MARAD officials told us they are currently reviewing
applications to dispose of 5 ships through artificial reefing and are
holding 4 ships for donations, although few of these actions are likely
to be completed by the statutory deadline.
Table 5: Completed Disposals by Disposal Method for Fiscal Years 2001-
04:
Method of disposal: Scrapping services (contracts);
Fiscal year 2001: 1;
Fiscal year 2002: 4;
Fiscal year 2003: 3;
Fiscal year 2004: 5;
Total: 13.
Method of disposal: Scrapping (sales);
Fiscal year 2001: 0;
Fiscal year 2002: 3;
Fiscal year 2003: 0;
Fiscal year 2004: 1;
Total: 4.
Method of disposal: Artificial reefing;
Fiscal year 2001: 0;
Fiscal year 2002: 1;
Fiscal year 2003: 0;
Fiscal year 2004: 0;
Total: 1.
Method of disposal: Deep-water sinking;
Fiscal year 2001: 0;
Fiscal year 2002: 0;
Fiscal year 2003: 0;
Fiscal year 2004: 0;
Total: 0.
Method of disposal: Donation;
Fiscal year 2001: 0;
Fiscal year 2002: 0;
Fiscal year 2003: 0;
Fiscal year 2004: 0;
Total: 0.
Method of disposal: Total;
Fiscal year 2001: 1;
Fiscal year 2002: 8;
Fiscal year 2003: 3;
Fiscal year 2004: 6;
Total: 18.
Source: GAO analysis of MARAD provided data.
[End of table]
MARAD Has Taken Recent Steps to Address Barriers to Use of Artificial
Reefing, Deep-Water Sinking, and Donations:
Recently, in response to congressional direction, MARAD has taken a
number of steps to address several barriers that have limited its use
of alternative disposal methods. These barriers have included
environmental factors related to the removal of hazardous materials
(remediation) from obsolete ships, the financial costs to remediate
these ships, and the legislative barriers to donating ships to
historical organizations. MARAD's actions to facilitate the use of
alternative methods are discussed below.
Artificial Reefing Program:
MARAD officials have identified artificial reefing as having the
greatest potential for use among the alternative methods and are
currently evaluating reefing applications from four states that cover
five ships. MARAD officials are optimistic that one of the five ships
being evaluated for reefing may be sunk as early as 2005. Under the
artificial reef program, MARAD transfers obsolete ships to states or
other jurisdictions to be submerged as part of a state-managed program
to build artificial reefs that benefit marine life, commercial and
sport fishing, and recreational diving. From 1973 to 1992, MARAD
transferred 46 ships to coastal states to be used as artificial reefs
but, since 2001, it has disposed of only one ship through reefing,
partly because of unresolved environmental issues.
MARAD has identified several obstacles that have hindered its ability
to use reefing, and the agency has recently taken some actions toward
facilitating the use of this method. Four of the obstacles and MARAD's
actions include:
* Lack of national environmental standards to prepare ships for
artificial reefing. According to MARAD officials, concerns about
environmental contamination, especially PCBs, have stifled the
artificial reefing program in recent years, and plans for preparing
vessels for reefing have been complicated by the lack of consistent
standards for environmental remediation. Congress, in 2002, directed
MARAD and EPA to jointly develop best management practices (national
guidelines) for preparing ships for the artificial reef
program.[Footnote 26] In June 2004, EPA published draft national
guidelines.[Footnote 27] The guidelines require, among other things,
the removal of PCBs greater than 50 parts per million throughout a ship
and asbestos in areas of a vessel that could be disturbed by explosives
used to sink the vessel. Once adopted, the guidelines should provide
MARAD and the states participating in the artificial reef program with
clear criteria for removing hazardous materials from ships.
* Cost of preparing/remediating vessels. According to MARAD officials,
the states have been reluctant to take on the responsibility of towing,
preparing, and sinking ships for artificial reefing because of the
potentially high costs they could incur. To address this issue, MARAD
requested and in 2002 Congress provided it with authority to provide
financial assistance to states to tow, prepare, and sink reef
candidates.[Footnote 28] Since 2002, MARAD has received applications
from four states to sink a total of five ships, one possibly as early
as 2005. Other applications have been delayed, partly because of the
lack of funding to prepare ships for reefing.
* Need to streamline application process. To sink obsolete ships to
form an artificial reef, MARAD and the states have to coordinate their
efforts with a number of government agencies, including the U.S. Army
Corps of Engineers, the U.S. Coast Guard, and EPA. According to MARAD,
states typically require about 9 months to complete this coordination.
MARAD and other agencies have been working to streamline the process.
For example, the Navy and MARAD have established a joint reef
application process for soliciting, receiving, and evaluating
applications from interested states. The joint process will allow MARAD
and the Navy to share resources to achieve common reefing goals.
* Limitation of program to the United States. Prior to fiscal year
2004, reefing candidates were restricted to state governments within
the United States. MARAD requested and received congressional
authorization in fiscal year 2004 to accept applications from U.S.
territories and foreign governments for reefing.[Footnote 29] MARAD has
received several inquiries since it received this new authority. For
example, MARAD has had significant interest from the Cayman Islands for
a reefing project.
Deep-Water Sinking Program:
MARAD has taken actions that could result in it disposing of a few of
its ships through the Navy's Sinking Exercise (SINKEX) program, which
involves sinking ships in deep water for weapons development testing
and evaluation and for fleet training exercises. In September 2003,
MARAD and the Navy developed a memorandum of agreement to include ships
in MARAD's inventory in the Navy's SINKEX program. According to MARAD,
as with the other disposal methods, deep-water sinking requires the
removal of environmentally hazardous materials from ships before they
are sunk. According to MARAD and discussions with the Navy, most of
MARAD's high-priority ships do not meet the Navy's needs because of
their advanced deterioration. As a result, MARAD considers deep-water
sinking a low-volume option even though the estimated costs are lower
than scrapping. MARAD has set a goal of disposing of one or two ships a
year through this method. However, the one ship that was scheduled, and
had been prepared by the Navy for deep-water sinking, had to be
withdrawn when it was determined that the ship had historical
significance and thus was not suitable for the Navy's program.
Vessel Donation:
As a result of recent congressional action, MARAD's use of a third
alternative disposal method--the ship donation program--may increase in
the future. Until 2003, MARAD could donate ships to qualified groups
only through special congressional legislation that designated a
specific ship, the recipient, and the conditions under which the
donation would take place. According to MARAD officials, the agency has
set aside four ships under this process, making them ineligible for
disposal through other methods unless their condition deteriorates.
This process has been lengthy, primarily because recipient groups
needed time to raise money to acquire, restore, and operate a ship for
its intended use. In some cases, ships that are on hold for a donation
may be removed because the recipient group has not been able to make
significant progress to complete the donation requirements. As table 6
shows, two ships (Hoist and Sphinx) are currently in this status.
Table 6: Current Status of Congressionally Designated Ship Donations:
Name of ship: Hoist;
Date of legislation: Nov. 2003;
Legislation expiration date: Nov. 2005;
Current status of donation: Donation hold will likely be removed at
expiration due to lack of recipient's progress.
Name of ship: Sphinx;
Date of legislation: Dec. 2002;
Legislation expiration date: Dec. 2004;
Current status of donation: Donation hold will likely be removed at
expiration due to lack of recipient's progress.
Name of ship: Glacier;
Date of legislation: Oct. 2000;
Legislation expiration date: Oct. 2002;
Current status of donation: Donation hold maintained based on
recipient's progress.
Name of ship: Hattiesburg Victory;
Date of legislation: Nov. 1998;
Legislation expiration date: None;
Current status of donation: Donation hold maintained but completion
date not determined.
Source: MARAD.
[End of table]
At MARAD's request, Congress, in 2003, gave the agency authorization to
establish a donation program that would allow it to donate ships
directly to groups interested in acquiring and preserving ships that
have historic significance. This change would eliminate the time-
consuming procedure of interested groups needing special legislation
for each donation.[Footnote 30] MARAD established its donation program
in July 2004 and indicated that accepted applications would be valid
for 1 year with two 6-month extensions possible based on an applicant's
progress in meeting the milestones presented in its business plan.
However, the program does not have the authority to provide potential
recipients with direct financial assistance--a barrier to progress in
the past. MARAD officials have said that the high costs associated with
the indefinite preservation of ships for historical purposes make it
unlikely that the agency could provide significant assistance, even if
the authority was provided.
MARAD Has Not Developed an Overall Plan to Increase Usage of
Alternative Disposal Methods:
Despite the steps it has taken recently, MARAD faces some additional
challenges to using alternative disposal methods. Since its first
report to Congress in 2001, MARAD has not conducted a systematic
assessment of its ship inventory to determine the most cost-effective
and efficient method for getting rid of individual ships. In addition,
it has not developed policies that would enhance the use of alternative
disposal methods. For example, while MARAD now has authority to share
artificial reefing costs and can provide funds to remediate ships in
its inventory, it does not have specific policies to guide it in
determining how much funding it should set aside for cost sharing or
for remediating ships to make them more readily transferable as part of
the artificial reefing or donation program. MARAD officials told us
that their approach is to make all ships available for all disposal
methods with few exceptions. According to these officials, this
approach allows states and historical preservation groups to select
ships according to their preferences without any restrictions. In the
past, this approach has led to some cases in which recipient groups
selected ships that were in the worst condition. For example, two of
the four ships that have been placed on hold for donation have had poor
hulls, and MARAD officials plan to remove these from hold status.
Because of the lack of an overall approach, MARAD may be losing
opportunities to dispose of more of its obsolete ships in the most cost-
effective and expeditious manner.
MARAD's Use of PRDAs to Scrap Ships Is Inappropriate:
Since fiscal year 2002, MARAD has inappropriately used a procurement
method--PRDA--to acquire most of its ship disposal services rather than
other procurement methods that are appropriate for acquiring such
services. According to MARAD, PRDAs are a variant of broad agency
announcements, an authorized procurement process under the FAR and the
Competition in Contracting Act of 1984 (CICA). PRDAs are designed to
enable federal agencies to acquire basic and applied research and that
part of development not related to the development of a specific system
or hardware procurement. MARAD officials cited several reasons for
using PRDAs, including seeking innovative solutions to ship disposal,
attracting more industry proposals, and reducing costs. Our analysis of
MARAD's PRDAs and contracts awarded under PRDAs through February 2004
showed that MARAD was not using PRDAs to acquire research or
development but to procure conventional ship scrapping services. In
addition to being inconsistent with CICA and the FAR, MARAD's use of
PRDAs to acquire ship scrapping services has led to a lack of
transparency and raised questions about the fairness of MARAD's
contract award process.
MARAD's Rationale for Using PRDAs:
According to MARAD, PRDAs are a variant of broad agency
announcements[Footnote 31] and meet the requirements of the FAR for the
use of these announcements. MARAD officials explained that the agency
chose to use PRDAs for a number of reasons. MARAD officials said that
they have used PRDAs to seek innovative, private-sector solutions for
controlling ship disposal costs and, at the same time, to gain insights
into domestic and international dismantling and recycling market costs.
MARAD officials pointed out that market cost data were particularly
important when the program did not receive appropriated funds in fiscal
year 2002. According to MARAD, the use of PRDAs provides greater
flexibility as it allows interested parties to propose methodologies
that are broader than those received in response to other
solicitations. In addition, MARAD officials said that they used PRDAs
to attract a larger number of proposals from qualified firms than they
had received under other methods. MARAD officials also told us that
their use of PRDAs had contributed to the significant lowering of
disposal prices through greater industry participation and increased
competition.
Since fiscal year 2002, MARAD has used PRDAs as its primary procurement
method. According to MARAD, the agency has used PRDAs to solicit
proposals for the disposal of over 130 different obsolete ships and has
awarded contracts for 34 of those ships. In addition to PRDAs, MARAD
has used other procurement methods--contracting by negotiation, under
which an agency issues a request for proposals,[Footnote 32] and sealed
bidding, under which an agency issues an invitation for bids[Footnote
33]--to award contracts to scrap 6 ships in 2001 and 4 ships in 2003.
Our Assessment of MARAD's Use of PRDAs:
Under the FAR, broad agency announcements are used to acquire basic and
applied research and that part of development not related to the
development of a specific system or hardware procurement.[Footnote 34]
Agencies can use this method to fulfill their requirements for
scientific study and experimentation directed toward advancing the
state of the art or increasing knowledge or understanding.[Footnote 35]
According to the FAR, agencies should use this method only when
meaningful proposals with varying technical approaches can be expected.
Although the FAR considers broad agency announcements a competitive
procurement method, proposals do not have to be evaluated against one
another since they are not submitted against a common work statement.
Regardless of MARAD's stated purposes for using PRDAs, their use must
be consistent with CICA and the FAR.
Generally, CICA requires executive agencies in conducting procurements
for property or services to "obtain full and open competition through
the use of competitive procedures."[Footnote 36] Under CICA,
"competitive procedures" include "the competitive selection of basic
research proposals resulting from a general solicitation and peer
review or scientific review (as appropriate)."[Footnote 37] This
provision is implemented by FAR sections 6.102 and 35.016. FAR section
6.102 describes "other competitive procedures" that meet the
requirement for full and open competition. That section provides that:
[c]ompetitive selection of basic and applied research and that part of
development not related to the development of a specific system or
hardware procurement is a competitive procedure if award results from-
-(i) A broad agency announcement that is general in nature identifying
areas of research interest, including criteria for selection of
proposals, and soliciting the participation of all offerors capable of
satisfying the Government's needs; and (ii) A peer or scientific
review.[Footnote 38]
The FAR, in this respect, implements the requirements of CICA by
allowing agencies to use the broad agency announcement as a means to
obtain research or development. It follows, and we conclude, that an
agency may only use broad agency announcements, or any variant of that
process, to acquire research or development in order to comply with
CICA and the FAR. Our analysis indicates that MARAD is not using broad
agency announcements, or PRDAs, to acquire research or development;
rather it is inappropriately using them to acquire ship scrapping
services.[Footnote 39]
An appropriate use of PRDAs would have allowed MARAD to solicit
proposals and award contracts for research or development that sought
to advance the state of the art or increase knowledge. In other words,
MARAD could have sought innovation in the ship scrapping industry
through research or development contracts. PRDAs we reviewed, however,
did not seek proposals to perform research or development. Rather,
along with innovative approaches for ship disposal, the PRDAs indicated
that proposals should address environmental and worker safety
considerations, production throughput/capacity, experience with ship
disposal, and funding requirements. With respect to funding, the PRDAs
did not ask firms to explain their costs to research or develop new
methods or approaches for ship disposal; instead, the PRDAs specified
that funding "must be proposed in sufficient detail to show all
anticipated costs associated with the complete dismantlement of the
vessel(s), including cost categories such as towing, remediation of
hazardous materials, labor costs, etc., as appropriate." Thus, rather
than soliciting proposals to perform research or to develop new methods
or technologies to scrap ships, MARAD's PRDAs essentially contemplate
the award of production contracts to firms with ship disposal
experience.
In addition, the results of MARAD's evaluation approach appeared to
give greater weight to the disposal of ships rather than obtaining
innovation, research, or development. In our review of MARAD's
evaluations for more than 70 proposals submitted under PRDAs from
November 2001 through March 2003, we found that MARAD had not accepted
proposals that were identified in program evaluations as having
innovative approaches or research or development. For example, one
evaluation summary stated that the proposal was rejected because it
would not result in the disposal of ships but only in the testing of a
hazardous material remediation technology and that PRDAs were not
intended to solicit proposals of untested technologies. Another
evaluation summary stated that only one ship would be disposed with no
cost advantage to MARAD and with no guarantee of discovering methods or
efficiencies that could be applied to the ship dismantlement industry
to MARAD's benefit. On the other hand, proposals that MARAD
provisionally accepted for further consideration were described in the
evaluations as providing conventional ship dismantling or recycling
services and in many instances acknowledged that the proposals did not
contain innovations.
We also found that MARAD did not award contracts that required
innovation or research or development. Our analysis of six contracts
awarded under PRDAs through February 2004 also showed that none of the
contracts specifically required innovative approaches in disposing of
ships. Instead, the contracts provided for conventional ship scrapping
services, with requirements, time lines, schedules, costs, and
objectives clearly spelled out, contrary to most research and
development contracts.[Footnote 40] For example, a contract between
MARAD and Post- SVC Remediation Partners, which was effective July 25,
2003, specifies that the contractor is to tow 13 vessels from their
current location (at the James River Reserve Fleet and Portsmouth Naval
Base) to the United Kingdom and completely "dispose of, dismantle and
remediate. . .[the] vessels by 31 December 2005."[Footnote 41] MARAD
officials stated that their dismantling contracts contained performance
schedules and outcomes as part of the government's responsibility to
monitor contractor performance; however, these officials stated that
MARAD did not mandate the methodology by which the contractor was to
dispose of the vessels. MARAD officials stated that because their
contracts are performance based, the contractors are responsible for
determining how they will comply with the terms of the contract,
thereby giving them flexibility during the dismantling operations.
While we agree that the use of a research or development contract would
not alleviate the government's responsibility for oversight, we do not
believe that MARAD acquired the innovative service it indicated PRDAs
were designed to obtain. In our view, the contracts were for ship
scrapping.
In addition, MARAD may not need to specifically acquire innovation to
expeditiously scrap ships. Industry representatives told us the process
of scrapping a ship does not require innovative approaches. Industry
officials said that ship scrapping is a fairly straightforward
activity, and most companies are using similar techniques to dispose of
ships. They pointed out that the basic technology for scrapping a ship
involves removing environmentally hazardous materials and then
dismantling the ship with a cutting torch. They said that while
companies might use different processes, the core technology did not
change. The representatives said that they had not developed any
innovative approaches in response to MARAD's PRDA process, and
officials at one firm said that they had not responded to MARAD's first
PRDA solicitation because they did not believe their company was
eligible to participate since it had no new technologies or innovations
to offer. However, once they learned that a competitor was obtaining
ship scrapping contracts through the PRDA process, they too submitted
proposals under PRDAs and were subsequently awarded contracts for ship
disposal. MARAD officials told us that the agency has seen several
innovations from domestic and foreign contractors as a result of the
PRDA process. Specifically, they pointed to the application of
technological advances such as hydraulic, articulated shears and high
pressure, water-cutting technology that have distinct advantages over
the traditional use of cutting torches, as well as the use of the dry
basin for dismantling of vessels, and improved business processes in
the contract performance. However, we did not see any evidence that the
use of these technologies was required by the terms of the contracts.
More importantly, the use of these technologies does not make the
contracts research or development contracts.
While MARAD officials claimed that more firms had responded to PRDA
solicitations than to other solicitation methods, we found that MARAD
did not consider several other factors that could have affected
participation. MARAD officials said that between 2001 and 2004, the
agency received proposals from 71 firms (57 from October 2001 to March
2003 and 14 from January 2004) through PRDA solicitations, compared
with 13 firms (8 in 2001 and 5 in 2003) through invitations for bid and
requests for proposals (see table 7). However, the higher responses may
have been due to the number of ships offered and their condition. For
example, while the PRDA solicitations included around 100 ships and
were open to domestic and foreign firms, solicitations by other methods
were limited to a few high-priority ships and were open only to
domestic firms because of concerns about long tows to the scrapping
sites. Other factors, such as the ship disposal program's larger
appropriations in 2003 and 2004 and a rise in the price of scrap metal
(making scrapping more profitable for the industry), could also have
affected participation. In addition, there is no evidence to suggest
the response that other procurement methods might have received would
have been any different, since most ships were only offered under
PRDAs. Moreover, several firms we contacted said that PRDAs had not
positively influenced their decision to make offers to scrap ships over
other procurement methods.
Table 7: Comparison of Industry Participation in PRDAs Versus Other
Solicitation Methods:
Number of ships offered;
2001 Invitation for bid/ Request for proposal: 12;
Oct. 2001 to March 2003 PRDA: 131;
2003 Invitation for bid: 4;
Jan. 2004 PRDA: 97.
Total number of firms;
2001 Invitation for bid/Request for proposal: 8;
Oct. 2001 to March 2003 PRDA: 57;
2003 Invitation for bid: 5;
Jan. 2004 PRDA: 14[A].
Domestic proposals;
2001 Invitation for bid/Request for proposal: 8;
Oct. 2001 to March 2003 PRDA: 34;
2003 Invitation for bid: 5;
Jan. 2004 PRDA: 7.
Foreign proposals;
2001 Invitation for bid/Request for proposal: 0;
Oct. 2001 to March 2003 PRDA: 23;
2003 Invitation for bid: 0;
Jan. 2004 PRDA: 9.
Source: MARAD.
[A] The sum of domestic and foreign proposals is greater than the total
number of firms because some firms submitted both domestic and foreign
proposals.
[End of table]
In addition to being inconsistent with CICA and the FAR, MARAD's use of
PRDAs has provided less transparency than other available solicitation
methods. For example, under an invitation for bids, bids are publicly
opened and typically are available for examination by competing
vendors.[Footnote 42] Under a request for proposals, competing vendors
are given written notice of the reason they are excluded from the
competition and are given an opportunity for a debriefing explaining
the agency's award decision.[Footnote 43] By contrast, proposals
submitted under PRDAs are often difficult to compare with other
proposals because they do not generally cover a specified statement of
work or a set number of ships. Consequently, firms are often unable to
determine why their proposal was not selected over another proposal.
Moreover, MARAD officials were not able to tell us what criteria they
used to award the six contracts we reviewed. For example, when they
conditionally accepted proposals from two different firms, they could
not explain what criteria they used to ultimately award a contract to
one firm rather than the other. The domestic ship scrapping contractors
with whom we spoke agreed that there was no way to determine why a
particular company got a contract.
This lack of transparency confuses and can alienate ship scrapping
contractors. In discussing their experience with MARAD's PRDA process,
several ship scrapping contractors told us that although they had
received contracts, they perceived inconsistencies in MARAD's use of
PRDAs. For example, they said that often a long time passes between the
acceptance of a proposal by MARAD and the award of a contract. Industry
officials said that although MARAD had informed them that their firm's
proposal was acceptable, MARAD took no further action on their proposal
for more than a year. During this time, MARAD conducted negotiations
with other firms over disposal issues, including the number of ships,
the specific ships, and the cost. Some firms questioned MARAD's ability
to assess the best proposal if it is negotiating only with selected
firms. Delays in awarding contracts affect the ship scrapping
contractors because of the volatile nature of the scrap metal market.
Other Procurement Methods Could Provide Similar Benefits:
At the beginning of the ship scrapping program in fiscal year 2001,
MARAD had planned to use another procurement method--contracting by
negotiation--in which an agency issues a request for proposals. MARAD
expected to use requests for proposals to dispose of vessels that were
in the worst condition and designated as high priority. It planned to
use this method to award multiple contracts to various ship scrapping
companies in different locations, using long-term, indefinite delivery,
indefinite quantity (IDIQ) contracts. These contracts were to specify a
minimum initial quantity of high-priority ships to be scrapped but
could subsequently be used to award additional ships to the same firms
within a certain time period. MARAD expected to award contracts to a
minimum of three companies to scrap at least one ship, and these
companies would have the opportunity to scrap additional ships.
However, MARAD officials said that when the agency did not receive any
fiscal year 2002 appropriations for the ship disposal program, it
shelved these plans. Instead, it turned to PRDAs for almost all of its
contracts.
While MARAD stated that other acquisition methods, such as requests for
proposals and invitations for bids, do not allow offerors to submit
solutions outside of the defined government requirements as could be
done with PRDAs, MARAD did not provide a convincing case as to why
these solutions were necessary to dispose of the ships that were in the
worst condition as quickly as possible. In fact, MARAD stated in its
briefing documents, PRDA solicitations, and reports to Congress, that
it anticipated that it would use methods other than PRDAs to address
the worst ships. While MARAD has also said that requests for proposals
and invitations for bids do not accommodate numerous proposals of
varied solutions based on each offeror's business model, we found that
they can provide some flexibility for both the government and the
offeror. For example, in a 2003 invitation for bids for four ships,
MARAD stated that it could award each ship separately or make multiple
awards for any combination of ships. As noted earlier, MARAD could also
use a request for proposals to select from a pool of qualified firms to
propose on an indefinite quantity of ships as funding became available.
Moreover, other federal agencies have used IDIQ contracts as a flexible
procurement tool when funding is uncertain. For example, Navy officials
told us that they used this method to gain flexibility in awarding
contracts for the Navy's ship disposal program when unanticipated end-
of-year money became available. Since fiscal year 1999, the Navy has
used requests for proposals to award IDIQ contracts to scrap 36 ships.
Overseas Competition Just One Factor Contributing to Lower Prices:
While we could not isolate the specific impact of foreign competition
and other factors on reducing the cost of ship disposal, MARAD
attributes the overall decrease in ship disposal costs almost
exclusively to overseas competition. However, other factors, such as
larger annual program funding allowing for more ships per contract and
increases in the scrap value of steel, may have also played a role. As
table 8 indicates, the price of contracts that MARAD has awarded since
2001 has generally decreased. These decreases included an instance
where solicitations were geographically restricted to domestic firms
only--because of the deteriorated condition of some ships. In 2001,
MARAD paid contractors an average of about $250 per ton to scrap ships.
This average price fell to about $109 per ton in 2004--a decrease of
about 56 percent.
Table 8: Price Trends for Contracts by Fiscal Year Awarded:
Number of ships offered;
2001 Domestic only proposals: 12;
2003 Domestic and foreign proposals: 131;
2003 Domestic only proposals[A]: 1;
2003 Domestic only proposals: 4;
2004 Domestic and foreign proposals: 97.
Number of ships awarded;
2001 Domestic only proposals: 6;
2003 Domestic and foreign proposals: 22;
2003 Domestic only proposals[A]: 1;
2003 Domestic only proposals: 3;
2004 Domestic and foreign proposals: 12.
Price per ton (of ships awarded);
2001 Domestic only proposals: $250;
2003 Domestic and foreign proposals: $102;
2003 Domestic only proposals[A]: $762;
2003 Domestic only proposals: $179;
2004 Domestic and foreign proposals: $109.
Source: MARAD.
[A] The ship involved in this proposal was unique in that it required
disposal in place.
[End of table]
In its 2004 report to Congress, MARAD attributed the drop in contract
prices to increased competition due to the inclusion of foreign firms
since it had received more proposals when international firms have been
included. However, while the overall price dropped from 2001 for two
solicitations that included both domestic and international companies,
it also decreased for one of the domestic solicitations that excluded
foreign competition. According to industry officials, however, other
factors, such as the condition of the ship, the amount of remediation
that is required, and the potential recovery from recyclable material,
can affect bid prices; thus, average prices based on tonnage alone may
not be very meaningful if the amount of hazardous materials present on
the ships varies.
An increase in appropriations for the ship disposal program since 2003
may also have contributed to lower contract prices by allowing larger
contracts that can benefit from a greater economy of scale. As table 3
shows, the program received $10 million in fund transfers from the Navy
in fiscal year 2001 and no appropriated funding in fiscal year 2002.
However, since fiscal year 2003, MARAD has received an annual average
of about $23 million. This level of funding has likely attracted new
interest among firms. According to MARAD officials, they have received
proposals from companies that had not participated previously and have
awarded contracts to some firms for the first time in 2004. Several
industry representatives told us that MARAD's higher funding levels
allowed them to offer proposals that represented greater economies of
scale, thus lowering costs. For example, one firm we visited was
awarded a contract in 2003 to dispose of five ships, and three other
firms received contracts to dispose of three ships each in 2004. By
contrast, only one firm received a contract to dispose of two ships in
2001.
A rise in scrap metal prices since 2003 has also contributed to lower
bid prices. Representatives from firms we contacted said that higher
scrap metal prices contributed to a large degree to their ability to
offer lower prices for scrapping ships in recent proposals because they
could expect to recover more of their costs from recycling the metal.
Figure 5 shows the increase in average yearly international scrap steel
prices since about 2002.
Figure 5: Annual Average International Scrap Steel Prices, 1994-04:
[See PDF for image]
[End of figure]
While several firms' representatives said that the participation of
foreign companies did not have an affect on their offers, in at least
one case domestic prices seem to have been influenced by foreign
competition. According to MARAD officials, one domestic firm reduced
its previous proposal by about 50 percent when it learned that MARAD
was in the latter stages of contract negotiations to export several
ships to a foreign firm. The domestic company made its new offer about
6 months after its original offer, and it included many of the ships
that were under negotiations with the foreign firm. MARAD officials
told us that subsequent offers from this and other domestic firms have
been lower since MARAD awarded the contract for foreign export.
Conclusions:
Although MARAD's ship disposal program has made some strides in
reducing its inventory of obsolete and deteriorating merchant ships in
the National Defense Reserve Fleet, it has managed to dispose of only
12 percent of its original 2001 inventory, and it is unlikely to meet
the already extended deadline of September 30, 2006, to get rid of the
entire inventory. The strides that MARAD has made have been facilitated
by congressional appropriations of almost $80 million--almost $25
million higher than requested--to procure ship scrapping services
during fiscal years 2001 through 2004 and by congressional support that
helped streamline the ship donation program and encouraged the
development of environmental standards for the artificial reefing
program.
However, these steps have not been enough to better ensure long-term
program success. MARAD's program currently does not have an overall,
comprehensive management approach that focuses specifically on the ship
disposal program and on meeting the statutory deadline of 2006. In the
absence of a comprehensive management approach, MARAD's ship disposal
program lacks the vision needed to sustain a long-term effort. In
addition, the program has not been able--and will likely continue to be
unable--to obtain, on a consistent and predictable basis, the funding
resources that it needs to efficiently and expeditiously reduce its
obsolete ship inventory. Moreover, MARAD has not undertaken an overall
assessment of its obsolete ship inventory, which is needed to determine
what disposal methods (e.g., domestic or foreign scrapping, artificial
reefing, deep-water sinking, or donations to organizations) are the
most appropriate one for each vessel. It has also failed to set
reasonable milestones for completing disposal and has not established
relevant performance measures to periodically measure progress toward
meeting the deadline. Similarly, MARAD has not established a formal
decision-making framework that would clearly delineate roles and
responsibilities and formalize program guidance and procedures.
Further, MARAD has not established a process to systematically identify
and assess the risk that external factors pose to the program, nor has
it laid out plans that would prioritize its actions to mitigate these
risks. In addition, MARAD has not submitted to Congress on a timely
basis the semiannual progress reports that the 2001 statute requires.
Finally, MARAD has predominately used a procurement method that is not
appropriate for acquiring ship scrapping services and that has led to
concerns about the lack of transparency in the way that ship scrapping
contracts have been awarded. As a result of these many weaknesses,
MARAD has not been able to ensure Congress that it can dispose of the
obsolete ships in a timely and cost-effective manner.
Without an improved management approach, MARAD's ship disposal program
will be limited in its ability to dispose of--in a timely manner--the
more than 100 obsolete ships currently in its inventory, as well as the
additional ships that the program expects to receive each year. As a
result of its slow progress, MARAD will continue to have a backlog of
obsolete and deteriorating ships that pose a threat to the coastal
waterways where they are anchored because of the toxic materials that
they contain. If this hazardous material should spill out, as it has
already in a number of cases, the ships could cause a costly
environmental disaster in some of the nation's sensitive waterways.
Recommendations for Executive Action:
We recommend that the Secretary of Transportation direct the MARAD
Administrator to take the following three actions.
* Develop a comprehensive approach to manage MARAD's ship disposal
program that would:
* identify a strategy and an implementation plan to dispose of all
existing obsolete ships and future transfers in a timely manner,
maximizing the use of all available disposal methods;
* determine the needed resources, the associated funding plan, and
specific milestones for this disposal;
* establish a framework for decision making that would delineate roles
and responsibilities and establish guidance and procedures;
* identify external factors that could impede program success and
develop plans to mitigate them; and:
* annually evaluate results and implement corrective actions.
* Regularly communicate MARAD's plan, required resources, and any
impediments that require congressional assistance in the mandated
reports to Congress.
We also recommend that MARAD change its contracting approach for
acquiring ship scrapping services from the use of PRDAs to an
appropriate method.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, DOT did not directly state
whether it agreed with our recommendations but noted that MARAD is
taking some actions that may address them. DOT's comments stated that
MARAD will provide an updated comprehensive, integrated approach to
program management in subsequent reports to Congress and MARAD has
terminated its usage of PRDAs. DOT's comments are included in appendix
II of this report.
DOT stated that despite the complex challenges that MARAD's ship
disposal program faces, through its efforts and actions, much has been
achieved including the disposal of 26 vessels. DOT also commented that
MARAD built a comprehensive disposal plan when the program was
authorized and provided that plan to Congress in 2001, and also
acknowledged that MARAD agrees that the time is right to ensure that
its planning efforts are up to date and are appropriately
comprehensive. However, MARAD does not believe that effective planning
will change the fundamental external legal, environmental, and
regulatory challenges that limit the number of ships that can be
processed and the speed at which the program can proceed.
We recognize that the ship disposal program faces a number of complex
challenges and that MARAD has taken a number of actions to address
them. However, we do not believe that these actions have been taken in
an integrated manner. That is why we continue to believe that a
comprehensive management approach could better focus program efforts
and lead to better program results. Specifically, we believe that the
program could benefit from clearly stated goals, planned approaches
consistent with these goals and with timetables, resource
identification that could support these approaches in identifying,
appropriate performance measures, and a process to systemically
identify and assess the program's external factors and determine the
related mitigation actions that could improve MARAD's chances of
meeting its program goals. While MARAD developed a plan that contained
some of these elements in 2001, the plan was not followed or revised.
We believe that MARAD's acknowledgment that it needs to ensure that its
planning efforts are up to date and comprehensive is a good first step.
However, MARAD's comments do not provide enough detail for us to
determine if these actions are sufficient.
DOT commented that MARAD has revised its contracting approach, which
resulted in the termination of its use of PRDAs. It stated that MARAD
had consistently provided fair treatment to contractors and that
contract awards were made on the basis of best value to the government.
We were not provided the details of MARAD's revised contracting
approach and thus cannot comment on it.
DOT also provided technical comments, which were incorporated as
appropriate.
We are sending copies of this report to Senators George Allen and John
Warner; Representative Jo Ann Davis; the Secretary of Transportation;
the Director, Office of Management and Budget; and other interested
parties. We will also make copies available to others upon request. In
addition, the report will be available at no charge on the GAO Web site
at [Hyperlink, http://www.gao.gov].
If you or your staff have questions regarding this report, please
contact me at (202) 512-8365 or [Hyperlink, Solisw@gao.gov] or Dave
Schmitt, Assistant Director, at (757) 552-8124 or [Hyperlink,
Schmittd@gao.gov]. Other major contributors to this report were Rodell
Anderson, Harry Jobes, Vijay Barnabas, Kenneth Patton, and Nancy Benco.
Sincerely yours,
Signed by:
William M. Solis:
Director, Defense Capabilities and Management:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To assess whether the Maritime Administration (MARAD) is likely to meet
the statutory deadline of September 2006 and, if not, what factors may
prevent it from doing so, we reviewed MARAD's 2001 report to Congress,
in which it presented its plan to meet the deadline, and its subsequent
2002 and 2004 status reports to Congress. We also reviewed the
Department of Transportation's (DOT) and MARAD's strategic and
performance plans and applicable laws and regulations pertaining to the
ship disposal program. To assess the adequacy of these plans and
reports for managing the ship disposal program, we compared the
elements used in MARAD's ship disposal management approach with those
developed from sound management principles as embodied in the
Government Performance and Results Act (GPRA) of 1993 and further
refined in GPRA user guides, our guide for leading practices in capital
decision-making, and our prior reports. To measure progress that MARAD
was making toward the 2006 deadline, we determined the number of
awarded contracts, ships removed from the storage sites, and the number
of ships disposed of by reviewing program documents. We also obtained
data to reflect impediments that were impacting the program. During our
review, MARAD officials in Washington provided us with briefings on the
program's funding, fair market value of obsolete ships, domestic and
foreign ship scrapping capacity, and ship scrapping performance bond
cost determination. We reviewed and analyzed National Defense Reserve
Fleet inventory reports for fiscal years 2000 to 2004 to determine the
number of ships entering and leaving the inventory. We also reviewed
reports that categorized the condition of ships in the inventory and
assessed whether ships in the worse condition were given the highest
priority for disposal. We also reviewed and analyzed funding data for
the MARAD ship disposal program for fiscal years 2001 through 2004 to
identify funding trends and examined a number of publications that had
focused on ship disposal issues.[Footnote 44]
In addition to talking with MARAD officials in Washington, D.C., we met
with MARAD representatives and conducted on site visits at the James
River Reserve Fleet near Fort Eustis, Virginia, and the Suisun Bay
Reserve Fleet, Benicia, California. During these visits, we talked with
officials about their methodology for determining ship condition,
discussed past instances of oil spills, and observed the condition of
the ships by touring selected obsolete ships. We selected these two
sites because they had the largest number of ships and included the
ones considered to be of highest priority for disposal.
To gain the perspective of domestic scrapping companies, we conducted
on-site visits at four domestic firms that had submitted proposals for
scrapping ships and had been awarded scrapping contracts. These
companies were Bay Bridge Enterprises LLC, Chesapeake, Virginia; and
International Shipbreaking Limited, LLC, Marine Metals, Inc., and ESCO
Marine, Inc., all of Brownsville, Texas. At each location, we met with
company managers to obtain their views on MARAD's ship disposal program
and also toured their facilities. We also interviewed officials at a
fifth firm--All Star Metals, Brownsville--that we had identified as
having the potential capacity to scrap MARAD ships.
To determine to what extent MARAD has used alternative disposal
approaches, other than ship scrapping, to dispose of its inventory of
obsolete ships, we interviewed officials in MARAD's Office of Ship
Operations and Ship Disposal Program Office and obtained and reviewed
MARAD's 2001 plan for ship disposal and MARAD's 2002 and 2004 reports
to Congress on plan implementation. We reviewed a list of alternative
approaches considered by MARAD and documented the priority that MARAD
placed on each alternative and the trade-offs associated with each
alternative in terms of costs, time, and barriers to implementation. In
addition, we interviewed officials in the U.S. Naval Sea Systems
Command program office responsible for managing the Navy's ship
disposal program in Washington, D.C., to discuss their program.
To assess the appropriateness of MARAD's procurement methods for
contracting for the disposal of surplus ships, we interviewed
responsible MARAD headquarters officials in their ship disposal program
office and their acquisition office, listened to briefings, and
reviewed documents related to the acquisition process. We also compared
MARAD's acquisition methods for ship disposal services with those used
by the Navy. We submitted a series of written questions to MARAD to
obtain the agency's legal position on the appropriateness of using
Program Research and Development Announcements (PRDA) as an acquisition
method for ship disposal. We reviewed MARAD's responses and reviewed
the criteria in the Competition in Contracting Act of 1984 and the
Federal Acquisition Regulation. We also examined MARAD's contract files
containing recent ship disposal industry proposals received in response
to PRDAs and reviewed the criteria and process that MARAD used to
evaluate industry proposals. We also reviewed the first six contracts
that MARAD awarded under PRDA to determine if they were consistent with
the Federal Acquisition Regulation. These contracts were awarded from
August 2002 to February 2004.
To assess the impact of foreign competition on reducing the cost of
ship disposal, we compared bid prices for solicitations that were
restricted to domestic firms only versus those that included domestic
and foreign firms. We also interviewed officials at MARAD and industry
representatives at the five domestic ship scrapping firms mentioned
previously to obtain their perspectives on factors contributing to
lower ship scrapping costs. In addition, we visited the Institute of
Scrap Recycling Industries, Washington, D.C., and obtained historical
data on world prices for recycled steel.
We determined that the data used in this report were sufficiently
reliable for the purposes of this report. We performed our audit from
November 2003 through November 2004 in accordance with generally
accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Transportation:
U.S. Department of Transportation:
Office of the Secretary of Transportation:
Assistant Secretary for Administration:
400 Seventh Street, S.W.:
Washington. D.C. 20590:
February 15, 2005:
Mr. William M. Solis:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street N.W.:
Washington, D.C. 20548:
Dear Mr. Solis:
Thank you for the opportunity to comment on the Government
Accountability Office (GAO) draft report, "Maritime Administration:
Improved Program Management Needed to Address Timely Disposal of
Obsolete Ships." The Department's specific comments are provided in the
enclosure with this letter.
We greatly appreciate the efforts expended by your staff in reviewing
this program, and would be happy to provide any additional information
or clarification that would be useful in this endeavor. Please contact
Martin Gertel on 202-366-5145 if there are any questions, or if we may
be of further assistance.
Sincerely,
Signed by:
Vincent T. Taylor:
Enclosure:
U.S. Department of Transportation Comments Regarding Government
Accountability Office (GAO) Draft Report, "Maritime Administration:
Improved Program Management Needed to Address Timely Disposal of
Obsolete Ships"
The Maritime Administration's (MARAD) obsolete ship disposal program
faces complex challenges on many fronts including regulatory,
legislative, resource, legal and industrial capacity issues. These
issues frequently overlap and require significant effort and time to
resolve. Despite these obstacles, much has been achieved. Since the
start of FY 2001 a total of 48 vessels have been awarded for disposal,
37 vessels removed from MARAD fleets, and 26 vessels have been
disposed. Due to its experienced staff and its comprehensive grasp of
these issues, MARAD has made progress on every front, working together
with the Congress and executive branch agencies. Legislative needs have
been identified and some of the changes necessary for full access to
all disposal alternatives enacted. Resources, to the extent available,
have been effectively applied to identifying and resolving all disposal
impediments. Counsel and technical experts continue to address the
myriad of legal challenges that arise with nearly every vessel disposal
method. Industry capacity has also been evaluated and addressed. Thanks
in part to our efforts encouraging broader competition, the number of
domestic vessel dismantling and recycling facilities has doubled over
the last four years. Our accomplishments also include fulfilling a
pledge by the Maritime Administrator to the Congress that all high
priority ships available for disposal in the James River Reserve Fleet
in Virginia, would be awarded for disposal in 2004.
While much progress has been achieved, the program faces serious
continuing issues. Since 2001, MARAD has been pursuing a multifaceted
approach to address these challenges and keep the program operating and
improving. On the regulatory front, MARAD has been addressing the
challenges involved in vessel dismantling and recycling and otherwise
disposing of these vessels in an environmentally acceptable manner.
This has required not only a concerted effort to conform to standards,
but also to identify what those standards should be, and gain
concurrence of environmental regulators on, for example, a single
nationwide standard for preparing vessels to be used as artificial
reefs. In addition, legal challenges are brought against individual
vessel dismantling and recycling projects by groups concerned that
these activities take place in an environmentally acceptable manner. In
some cases, these legal challenges can add years to a single recycling
effort as witnessed by an existing contract for recycling 15 ships at a
qualified foreign facility that is on hold due to legal challenges.
Some inconsistency in the level of resources available for vessel
recycling efforts has at times also impacted our efforts. Finally, even
with the increase in facilities, cost-effective, domestic capacity
still does not rise to the level needed to meet the 2006 disposal
mandate. Nevertheless, we continue to evaluate industry conditions,
anticipate new issues, and implement effective workable solutions to
existing issues.
Set in this environment of complex, dynamic and often interwoven
challenges, we do not agree with the GAO report's conclusion that the
program has made slow progress "primarily" because of the program's
planning. Rather, we maintain that the combination of external factors
facing the program is the primary source of delay. MARAD has done
extensive planning for this program. While MARAD agrees the time is
right to ensure that its planning efforts are up to date and
appropriately comprehensive, even the most effective planning will not
directly change the fundamental external challenges that limit the
number of ships that can be processed and the speed at which we can
proceed.
Disposal Program Faces Formidable Challenges:
The Federal program for disposing of obsolete merchant marine vessels
faces a number of obstacles that significantly impact this program.
Among the most significant are: restrictions on export, domestic
capacity limitations, legal challenges, and issues affecting the use of
alternative disposal methods. MARAD's recognition of the impact of
these factors led it to inform the Congress, as early as June 2002,
that it was unlikely to be able to meet the September 2006 disposal
deadline. The GAO draft report, and the conclusion it reaches, would
benefit from expanded consideration of these factors and the relative
impact they have had on the ship disposal program.
Restrictions on Vessel Export for Recycling - Export offers significant
potential for increasing disposal capacity in a cost-effective,
environmentally sound and expeditious manner; however, environmental
regulatory impediments to vessel export continue to preclude
utilization of this alternative. As detailed in reports required by
Congress, MARAD, under existing regulation, is effectively prevented
from exporting ships for dismantling and recycling. Due to the
statutory constraints contained in the Toxic Substances Control Act
(TSCA), foreign disposal of obsolete vessels is not a commercially
viable option. This is primarily due to the TSCA prohibition on
exporting polychlorinated biphenyls (PCBs). If the foreign export
hurdles could be cleared, MARAD would be in a position to consider
existing proposals that could significantly reduce the number of
obsolete vessels awaiting disposal.
Domestic Capacity Limitations - In light of the export limitation, and
continuing challenges associated with alternative disposal methods, the
rate of disposal is highly dependent on the availability of cost-
effective domestic facilities. Industrial capacity, in terms of annual
ship disposal rates, is difficult to quantify because of several
factors, including variation in vessel condition and the scope of
hazardous material remediation that would be needed. However, due to
capacity and resource limitations, the six domestic facilities that
have been awarded contracts over the past few years, have demonstrated
a potential cost-effective capability to dismantle and recycle up to 15
to 20 vessels per year. Further, even at award rates that are lower
than the 15-20 ship potential, the limitations of many domestic
facilities often result in significant delays of four to five months
after contract award before the facility takes possession of the
vessels and dismantling commences. It is also not uncommon for domestic
facilities to request significant extensions for completing the work.
Over the past year, domestic facilities with the exception of two, have
had significant production throughput problems, which significantly
delayed completion of recycling projects awarded by MARAD.
Legal Challenges - MARAD adheres to the statutory mandate of selecting
qualified facilities for ship disposal based on best value to the
Government and "without any predisposition toward foreign or domestic
facilities." Unfortunately, MARAD's disposal efforts to foreign
facilities have been impeded by legal challenges from third parties
both in the U.S and abroad. The domestic lawsuits challenge compliance
with environmental laws, including TSCA. Foreign legal challenges
question compliance with regulatory and administrative processes. These
challenges tie up resources that could be used for ship disposal
activities and have indefinitely delayed the disposal of 15 ships under
contract for foreign recycling.
Alternative Disposal Challenges - While MARAD is vigorously pursuing
alternative disposal options, substantial challenges currently limit
the use of these methods. First, MARAD continues to work with Federal
environmental regulators to come up with a consistent set of Federal
standards for preparing vessels for reefing. In addition, MARAD's work
with coastal states is at a competitive disadvantage with the military
as a result of recent changes in the Navy's vessel disposal program. In
order to be on equal footing with the Navy's reefing program and to
increase demand from coastal states for MARAD ships to be used as
reefs, MARAD is currently pursuing additional legislative changes to
its artificial reefing authority.
MARAD Uses a Comprehensive Approach to Ship Disposal:
MARAD built a comprehensive ship disposal plan when the program was
authorized, and provided that plan to the Congress in 2001. MARAD's
strategy and plans for the vessel dismantling and recycling program
have to be flexible to contend with the dynamic nature of the industry
and the impediments. MARAD's strategy is to identify the most expedient
and cost-effective option for disposal of each ship in its inventory
consistent with sound environmental practices. It emphasizes disposing
of those ships in the worst condition first, while maintaining the
flexibility necessary to respond to market conditions and
opportunities. MARAD's approach is well understood throughout the
agency, and has been fully disclosed to the Congress through various
means since the program's inception in 2001. MARAD will continue its
planning efforts and make certain that plans are up to date and as
comprehensive as possible. MARAD will provide an updated vision of its
comprehensive, integrated approach to program management in subsequent
reports to Congress.
MARAD Revised Its Contracting Approach:
Use of the Program Research and Development Acquisition (PRDA) method
was terminated in 2004. However, it is important to note that MARAD
consistently provided for fair treatment of contractors, and awards
were made on the basis of best value to the government. Additionally,
MARAD was careful to provide all contractors with extensive information
about the process, and how it worked, and selected disposal facilities
based on careful evaluation to ensure that they were fully qualified.
Conclusion:
MARAD is using all available means to dispose of the obsolete merchant
marine ships in its National Defense Reserve Fleet in an
environmentally acceptable, cost-effective and expeditious manner.
MARAD has assessed the obsolete ships in its inventory and understands
their condition, and their readiness for towing. It also understands
the ship disposal industry, including domestic capacity, its
limitations, and the role that foreign capacity can play in addressing
existing limitations. Finally, as described above, the primary factors
affecting the pace of ship disposal progress are the limited
availability of cost-effective domestic capacity, current
unavailability of foreign disposal contractors, and the third party
legal challenges that frequently delay disposal efforts.
GAO's Comments:
The following are GAO's comments on the Department of Transportation's
letter dated February 15, 2005.
1. We do not agree that MARAD has made substantial progress since 2001,
considering less than 12 percent of the ships that have been in its
inventory had been disposed of through September 2004--4 years later.
While MARAD has made more progress in disposing of ships in the past 2
years, much of this progress can be attributed to Congress providing
about $25 million more than was sought in the fiscal years 2003 and
2004 budget requests and the rising scrap metal market that has kept
contract prices low. We also do not agree that the number of ships
awarded is a good measurement of program progress since contract award
has not always led to ships being removed and disposed of.
2. MARAD has no way of determining how successful exporting ships could
be in reducing the number of its ships because it has not
systematically identified and assessed potential impediments to export
and determined actions to mitigate them.
3. As our report points out, while DOT states that domestic capacity is
limited, our report notes that MARAD has not done an analysis to
determine the potential domestic capacity nor thought such an analysis
was necessary. The recent increase in the number of domestic firms
being awarded contracts would indicate that MARAD underestimated
domestic capacity in the past.
4. We believe that MARAD lacks an integrated strategy for disposing of
all of its ships using its available disposal methods. Lacking such a
strategy contributed to MARAD's decision to award an export contract
that included 10 of its worst-conditioned ships before the advisability
and feasibility of exporting was demonstrated. As a result, almost half
of the $31 million that Congress appropriated in fiscal year 2003 has
been tied up, pending the resolution of issues related to the exporting
of these ships, and the disposal of these 10 deteriorated ships has
been delayed.
5. We agree that plans must be flexible. However, successful programs
must have a road map to guide its efforts. While DOT states that its
strategy emphasizes disposing of ships in the worst condition first,
neither its reports to Congress nor its strategic planning documents
have identified the amount of funding needed to accomplish this
strategy based on its available disposable methods nor given a
timetable for accomplishing these disposal actions.
[End of section]
(350471):
FOOTNOTES
[1] Established in 1946, the National Defense Reserve Fleet serves as a
reserve that could be activated to meet shipping requirements during
national emergencies. The fleet, which consists of more than 250
merchant vessels, contains some older vessels that have been designated
for disposal (referred to as nonretention ships). In this report, we
refer to nonretention ships as obsolete ships.
[2] Scrapping refers to dismantling the ship and recycling its
components.
[3] Pub. L. No. 106-398, § 3502 (2000).
[4] Congress originally required MARAD to dispose of obsolete ships in
the National Defense Reserve Fleet by September 30, 1999, in The
National Maritime Heritage Act of 1994, Pub. L. No. 103-451, §
6(c)(1)(A). Congress subsequently amended the deadline to September 30,
2001, in the National Defense Authorization Act for Fiscal Year 1998,
Pub. L. No. 105-85, § 1026(c)(3) (1998). Congress set the deadline of
September 30, 2006, in the Floyd D. Spence National Defense
Authorization Act for Fiscal Year 2001, Pub. L. No. 106-398, § 3502(a)
(2000).
[5] Pub. L. No. 106-398, § 3502 (2000).
[6] From October 2004 through January 2005, MARAD stated that 4
additional ships had been completely disposed of, for a total of 22
ships from the 2001 inventory.
[7] The Navy's Sinking Exercise program uses obsolete ships for target
practice during deep-water training exercises.
[8] Pub. L. No. 108-136, § 3512 (2003).
[9] MARAD used the sealed bidding contracting method that employs
competitive bids, public opening of bids, and awards primarily on the
basis of price and other price-related factors. FAR Part 14.
[10] 40 U.S.C. § 548.
[11] 15 U.S.C. 2601 et seq. and 40 Code of Federal Regulations
(C.F.R.), Part 761.
[12] Pub. L. No. 103-451, § 6(c)(1).
[13] Pub. L. No. 106-398, § 3502(a)(1) (2000).
[14] A third report had been in draft but had not been approved.
According to MARAD, the report was submitted to Congress in October
2004.
[15] Department of Transportation, Maritime Administration, A Report to
Congress on the Program for Scrapping Obsolete National Defense Reserve
Fleet Vessels (Washington, D.C., April 2001).
[16] Pub. L. No. 106-398, § 3502(d)(2) (2000).
[17] Department of Transportation, Maritime Administration, Report to
Congress: Progress of the Vessel Scrapping Program (Washington, D.C.,
June 2002).
[18] Three of the original 115 ships in MARAD's inventory had existing
sales contracts when the authorization to procure scrapping services
was provided, and were subsequently scrapped.
[19] The additional ships represent those that have been reclassified
from MARAD's retention fleet or those transferred from the Navy.
[20] MARAD lists a ship in its inventory until it receives a
destruction certificate from the ship scrapping company attesting to
the fact that the disposal action has been completed.
[21] Pub. L. No. 106-398, § 3502(e) (2000).
[22] 16 U.S.C. § 5405 note.
[23] The contract also included selling two unfinished ships.
[24] Department of Transportation, Maritime Administration, Report to
Congress: Progress of the Vessel Disposal Program (Washington, D.C.,
June 2004).
[25] Pub. L. No. 106-398, § 3502(d)(3).
[26] Pub. L. No. 107-314, § 3504(b)(1) (2002).
[27] See
http://epa.gov/owow/oceans/habitat/artificialreefs/guidance.html.
[28] 16 U.S.C. § 1220c-1.
[29] Pub. L. No. 108-136, § 3516(c) (2003).
[30] Pub. L. No. 108-136, § 3512 (2003).
[31] 48 C.F.R. § 35.016. Hereinafter, all references to title 48 of the
Code of Federal Regulations will be to ("FAR").
[32] Requests for proposals are used to solicit offers from prospective
contractors where awardees are selected through technical evaluation
and with negotiation permitted with prospective contractors. Part 15 of
the FAR generally governs the use of requests for proposals.
[33] Using an invitation for bids, an agency solicits sealed bids where
price or price-related factors are the determinative factor for award
and when it is not necessary for the government to discuss the
technical aspects of bids. Part 14 of the FAR generally governs the use
of invitations for bids.
[34] According to FAR § 2.101, basic research is research directed
toward increasing knowledge in science. The primary aim of basic
research is a fuller knowledge or understanding of the subject under
study, rather than any practical application of that knowledge;
according to FAR § 35.001, applied research is the effort that (a)
normally follows basic research, but may not be severable from the
related basic research; (b) attempts to determine and exploit the
potential of scientific discoveries or improvements in technology,
materials, processes, methods, devices, or techniques; and (c) attempts
to advance the state of the art; and development is the systemic use of
scientific and technical knowledge in the design, development, testing,
or evaluation of a potential new product or service (or of an
improvement in an existing product or service) to meet specific
performance requirements or objectives.
[35] FAR § 35.016(a).
[36] 41 U.S.C. § 253(a).
[37] 41 U.S.C. § 259(b).
[38] FAR § 6.102(d)(2).
[39] Although we reviewed the appropriateness of MARAD's contracting
process, our review is not related in any way to the statutory bid
protest function of the Comptroller General under CICA.
[40] FAR § 35.002 states that "unlike contracts for supplies and
services, most research or development contracts are directed toward
objectives for which the work or methods cannot be precisely described
in advance."
[41] Section C1.5, Towing Schedule.
[42] FAR § 14.402-1.
[43] FAR §§ 15.503, 15.505, and 15.506.
[44] Interagency Panel, Report of the Interagency Panel on Ship
Scrapping, April 1998 (the panel was chaired by the Office of the
Deputy Under Secretary of Defense for Environmental Security with
representatives from the Departments of State, Justice, Labor, and
Transportation; the Navy, Defense Logistics Agency, and Environmental
Protection Agency); GAO, Federal Surplus Ships, Government Efforts to
Address the Growing Backlog of Ships Awaiting Disposal, GAO/NSIAD-99-18
(Washington, D.C.: Oct. 22, 1998); Rand Corporation, Disposal Options
for Ships, 2001; Commission of the European Communities, Technological
and Economic Feasibility Study of Ship Scrapping in Europe, February
2001.
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